<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN DIVERSIFIED FUND
February 11, 1998
Dear Shareholder:
Your Fund has changed its name. The JPM Pierpont Diversified Fund is now the
J.P. Morgan Diversified Fund. When J.P. Morgan began advising mutual funds over
15 years ago, regulatory restrictions prevented us from using our name in the
title of any mutual fund, which led to the JPM acronym. With the evolution of
today's financial marketplace, we are now able to proudly include the full J.P.
Morgan name in the title of your Fund.
We are pleased to report that the Fund earned a strong absolute return during a
period that was characterized by volatility both at home and abroad. For the six
months ended December 31, 1997, the Fund returned 6.11%. The Diversified
Benchmark*, against which we measure the Fund's performance, returned 7.23%. The
Diversified Benchmark is an index whose performance does not include fees,
transaction costs or operating expenses. The Lipper Balanced Fund Average, a
group of the Fund's peers, returned 7.90%.
Our underperformance was largely due to the Portfolio's asset allocation. For
nearly all of 1997, we were underweighted in U.S. large-cap stocks. This was in
keeping with our long-term strategy, which places a premium on value. We limit
our exposure to asset classes that, in our view, are overvalued, and we redeploy
the Portfolio's assets into undervalued strategies. The large-cap stocks, many
of which are displaying record high price/earnings ratios, do not offer the
risk/return relationship we seek for the Portfolio. With the 50 largest stocks
in the S&P 500 Index outperforming the other 450 stocks for the last several
years, we have reduced our overall exposure to these larger stocks.
During the third quarter of 1997, the markets began to confirm our view.
Large-cap stocks considerably lagged small-caps for the three-month period as
investors began to seek value outside of the largest stocks. However, trouble in
Southeast Asia during October caused investors to once again take refuge in the
perceived stability of large-cap stocks. The Nifty Fifty stocks reasserted their
dominance in the fourth quarter, and the Portfolio's limited exposure to this
group caused us to lag the Benchmark.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . . 6
FUND PERFORMANCE . . . . . . . . . 3 SPECIAL FUND-BASED SERVICES. . . . . 7
PORTFOLIO MANAGER Q&A. . . . . . . 4 FINANCIAL STATEMENTS . . . . . . . . 10
- --------------------------------------------------------------------------------
1
<PAGE>
The Fund's net asset value on December 31, 1997, was $13.69 per share, versus
$13.89 at June 30, 1997. During the period, the Fund paid $0.36 per share in
dividend income, $0.28 per share in short-term capital gains, and $0.38 per
share in long-term capital gains. In addition, the net assets of the Diversified
Portfolio, in which the Fund invests, rose from $308 million on June 30, 1997,
to $387 million on December 31, 1997.
The report that follows includes an interview with John M. Devlin, a member of
the portfolio management team. It is designed to answer commonly asked questions
about the Fund and elaborate on what happened during the reporting period. If
you have any comments or questions, please call your Morgan representative or
J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
* Comprises 52% S&P 500 Index, 35% Salomon Brothers Broad Investment Grade Bond
Index, 10% MSCI EAFE Index, and 3% Russell 2000 Index.
2
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or 10 years. Total returns for periods of less than one year are not annualized
and provide a picture of how a fund has performed over the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- -----------------------------------
THREE SIX ONE THREE SINCE
AS OF DECEMBER 31, 1997 MONTHS MONTHS YEAR YEARS 9/30/93*
- -------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Diversified Fund 1.13% 6.11% 18.47% 19.33% 13.80%
Diversified Benchmark** 1.65% 7.23% 21.26% 20.91% 14.85%
S&P 500 Index 2.87% 10.58% 33.36% 31.15% 22.13%
Salomon Brothers Broad Investment
Grade Bond Index 2.95% 6.37% 9.62% 10.43% 6.53%
MSCI EAFE Index (7.83%) (8.48%) 1.78% 6.27% 6.46%
Russell 2000 Index (3.35%) 11.03% 22.36% 22.33% 15.50%
Lipper Balanced Fund Average 1.15% 7.90% 19.00% 19.44% 13.11%
</TABLE>
* REFLECTS PERFORMANCE OF THE J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND FROM
SEPTEMBER 10, 1993 THROUGH DECEMBER 15, 1993 (COMMENCEMENT OF OPERATIONS).
THE PERFORMANCE FOR SUCH PERIOD REFLECTS THE DEDUCTION OF THE EXPENSES OF
THE J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND, WHICH WERE LOWER THAN THE
EXPENSES OF THE FUND. ALL RETURNS ARE CALCULATED FROM SEPTEMBER 30, 1993.
THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE ITS COMMENCEMENT OF OPERATIONS
ON SEPTEMBER 10, 1993. IS 13.38%.
** COMPRISES 52% S&P 500 INDEX, 35% SALOMON BROTHERS BROAD INVESTMENT GRADE BOND
INDEX, 10% MSCI EAFE INDEX, AND 3% RUSSELL 2000 INDEX.
THE S&P 500 INDEX, SALOMON BROTHERS BROAD INVESTMENT GRADE BOND INDEX,
MSCI EAFE INDEX, AND RUSSELL 2000 INDEX ARE UNMANAGED INDICES WHICH MEASURE
PERFORMANCE OR PRICE MOVEMENT BASED ON THE AVERAGE PERFORMANCE OF 500 WIDELY
HELD U.S. LARGE CAP STOCKS, OF APPROXIMATELY 4700 INDIVIDUALLY PRICED INVESTMENT
GRADE BONDS RATED BBB OR BETTER, OF NEARLY 1100 STOCKS TRADED IN EUROPE,
AUSTRALASIA, AND THE FAR EAST, AND OF 2000 U.S. SMALL CAP COMPANIES,
RESPECTIVELY. THE INDICES DO NOT INCLUDE FEES OR OPERATING EXPENSES AND ARE NOT
AVAILABLE FOR ACTUAL INVESTMENT.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. LIPPER ANALYTICAL SERVICES,
INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
3
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with JOHN M. DEVLIN, JR., who has been a member of the
portfolio management team for the Diversified Portfolio since December of 1993.
John joined J.P. Morgan in 1986. At Morgan, he was on special assignment in the
Frankfurt office and, prior to that, spent six years on the Fixed Income trading
desk as a mortgage and corporate specialist. Before joining Morgan, John was a
pension fund manager and Treasury manager during his 12 years with U.S. Steel.
He earned a degree in Finance from Georgetown in 1967, and an MBA from Pace
University in 1976. He was an adjunct professor of Finance at Pace University
for 10 years.
WHAT MAKES THE DIVERSIFIED PORTFOLIO UNIQUE?
JMD: We bring two main strengths to the table in the management of this
Portfolio. The first is Morgan's proprietary fundamental research, which enables
us to uncover attractively valued securities worldwide. The second is actively
managed, disciplined portfolio construction, which seeks superior long-term
returns by minimizing the Portfolio's exposure to securities that we view as
relatively overvalued. The consistency with which we have pursued our investment
approach over time has resulted in long-term returns that are right in line with
our competitors -- with less volatility of returns.
HOW HAS YOUR DISCIPLINED APPROACH WORKED DURING THE PAST SIX MONTHS?
JMD: As our returns reflect, we lagged the benchmark for the period covered in
this report. This was due largely to our decision to allocate assets away from
U.S. large-cap stocks. While the portion of the Portfolio invested in these
securities performed extremely well, the Portfolio's underweighting in this
asset class held us back relative to our competition.
We made the decision to trim our exposure to large-caps because our valuation
research told us that this asset class was relatively overvalued. Among the
large-caps, the Nifty Fifty (the 50 largest stocks in the S&P 500) led the way.
Yet many of these stocks are displaying price-to-earnings ratios in excess of 40
times. We believe that is cause to underweight the entire asset group.
Most investors were undaunted by the valuations of the Nifty Fifty, however, and
these stocks outperformed the rest of the U.S. market for much of 1997. Large
caps were further boosted when the crisis in Southeast Asia caused a flight to
quality. Investors sought out the large names they know instead of smaller
stocks that they thought might not hold up well during uncertain times.
4
<PAGE>
HAVE THE FIRST FEW WEEKS OF 1998 CAUSED YOU TO RETHINK YOUR STRATEGY?
JMD: Not at all. Over my career, I've found that the successful managers stick
with their discipline -- even when it's out of favor for the time being. The
managers who frantically switch styles whenever one approach is lagging are the
ones who consistently occupy the bottom of the performance charts. Morgan's
approach -- using our research-driven information advantage to seek out
undervalued securities -- has served us very well over time. We're not about to
abandon it now.
HOW ARE YOU INVESTED IN THE SMALL-CAP PORTION OF THE PORTFOLIO?
JMD: We are presently overweighted in small-cap stocks, which we believe are
undervalued relative to the large-caps. Small stocks have underperformed for
some time, and thus offer good value. They also are positioned to weather some
of the potential problems that we see for large-caps, such as a strong U.S.
dollar and possible earnings disappointments caused by the Asian slowdown.
HAS THE ASIAN CRISIS LED YOU TO AVOID NON-U.S. STOCKS?
JMD: We're limiting our exposure to Japan and the rest of Asia for the time
being. However, we see good value in Europe at the moment. The European Monetary
Union is less than a year away, and looks to be a positive step for the region.
There has been a wave of corporate restructurings and large mergers, as well,
all of which are making the European countries more competitive. Because of
these positive factors, the Portfolio is slightly overweighted in foreign
stocks.
HOW HAVE THE PORTFOLIO'S FIXED-INCOME SECURITIES PERFORMED?
JMD: We have benefited from a U.S. bull market in bonds and from some very good
decisions about which bonds to own. U.S. long-term bond yields are at the lowest
levels since January of 1996, and the prices of these bonds have risen as a
result. This can create some problems for mortgage-backed securities, as people
tend to refinance their mortgages in a declining-yield environment. Fortunately,
we were overweighted in lower-coupon mortgage securities, which are less prone
to refinancing than higher-coupon bonds.
WHICH SECURITIES IN PARTICULAR CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
JMD: Cisco Systems, Schering-Plough, Compaq Computer and Tele-Communications
added significantly to our performance for the six months.
WHICH SECURITIES HINDERED THE PORTFOLIO'S PERFORMANCE?
JMD: Underweighted positions in AT&T and General Electric, coupled with holdings
in NationsBank, Sears and WorldCom negatively impacted the performance of our
large-cap stocks.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Diversified Fund seeks to provide a high total return from a
diversified portfolio of equity and fixed income securities. It is designed for
investors who wish to invest for long-term objectives, such as retirement, and
who seek over time to attain real appreciation of their investments, but with
somewhat less price fluctuation than a portfolio consisting solely of equity
securities.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
12/15/93
- --------------------------------------------------------------------------------
NET ASSETS AS OF 12/31/97
$100,376,016
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
QUARTERLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The Fund's current annualized expense ratio of 0.98% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The Fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping Fund shares, or for wiring redemption proceeds from the
Fund.
FUND HIGHLIGHTS
ALL DATA AS OF DECEMBER 31, 1997
PORTFOLIO ALLOCATION
[PIE CHART]
U.S. LARGE-CAP EQUITIES 42.8%
FIXED INCOME 37.3%
INTERNATIONAL EQUITIES 10.7%
U.S. SMALL-CAP EQUITIES 5.1%
SHORT-TERM INVESTMENTS 4.1%
TOP 10 HOLDINGS
(EXCLUDING SHORT-TERM INVESTMENTS) % OF TOTAL INVESTMENTS
- -------------------------------------------------------------------------------
U.S. TREASURY BOND, 8.5% DUE 2/15/20 4.0%
U.S. TREASURY NOTE, 6.63% DUE 6/30/01 2.3%
FNMA REMIC, 6.5% DUE 1/25/23 1.9%
U.S. TREASURY BOND, 6.5% DUE 11/15/26 1.6%
U.S. TREASURY NOTE, 6% DUE 6/30/99 1.5%
EXXON CORP. 1.1%
FNMA, 8% DUE 12/01/26 1.1%
MERCK & COMPANY, INC. 1.1%
INTEL CORP. 1.0%
U.S. TREASURY NOTE, 7.75% DUE 11/30/99 1.0%
6
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- - make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- - make investments through the diversified family of J.P. Morgan mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in the Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
KEOGH
Keogh plans provide another excellent vehicle to help individuals who are
self-employed or are employees of unincorporated businesses to accumulate
retirement savings. A Keogh is a tax-deferred pension plan that can allow you to
contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The J.P. Morgan Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
7
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY
AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
Past performance is no guarantee of future performance. Returns are net of fees,
assume the reinvestment of Fund distributions, and may reflect the reimbursement
of Fund expenses as described in the prospectus. Had expenses not been
subsidized, returns would have been lower. The Fund invests through a master
portfolio (another fund with the same objective). References to specific
securities and their issuers are for illustrative purposes only and are not
intended to be, and should not be interpreted as, recommendations to purchase or
sell such securities. Opinions expressed herein are based on current market
conditions and are subject to change without notice. The Fund invests in foreign
securities which are subject to special risks; prospective investors should
refer to the prospectus for a discussion of these risks.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
8
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Diversified Portfolio
("Portfolio"), at value $100,311,126
Receivable for Shares of Beneficial Interest Sold 139,513
Deferred Organization Expenses 6,525
Receivable for Expense Reimbursements 4,525
Prepaid Expenses and Other Assets 624
------------
Total Assets 100,462,313
------------
LIABILITIES
Payable for Shares of Beneficial Interest
Redeemed 34,967
Shareholder Servicing Fee Payable 20,857
Administrative Services Fee Payable 2,521
Accrued Trustees' Fees and Expenses 528
Administration Fee Payable 366
Fund Services Fee Payable 112
Accrued Expenses 26,946
------------
Total Liabilities 86,297
------------
NET ASSETS
Applicable to 7,330,143 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $100,376,016
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $13.69
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 87,868,472
Undistributed Net Investment Income 109,463
Accumulated Net Realized Gain on Investment and
Foreign Currency Transactions 169,467
Net Unrealized Appreciation of Investment and
Foreign Currency Translations 12,228,614
------------
Net Assets $100,376,016
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign
Withholding Tax of $8) $1,230,750
Allocated Dividend Income (Net of Foreign
Withholding Tax of $9,828) 421,822
Allocated Portfolio Expenses (Net of
Reimbursement of $31,862) (278,389)
----------
Net Investment Income Allocated from
Portfolio 1,374,183
FUND EXPENSES
Shareholder Servicing Fee $106,913
Transfer Agent Fees 15,272
Administrative Services Fee 12,958
Registration Fees 11,366
Printing Expenses 8,094
Professional Fees 6,034
Amortization of Organization Expenses 3,459
Fund Services Fee 1,478
Administration Fee 1,185
Trustees' Fees and Expenses 810
Line of Credit Expenses 541
Miscellaneous 2,431
--------
Total Fund Expenses 170,541
Less: Reimbursement of Expenses (29,830)
--------
NET FUND EXPENSES 140,711
----------
NET INVESTMENT INCOME 1,233,472
NET REALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS ALLOCATED FROM PORTFOLIO 1,479,403
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT AND FOREIGN CURRENCY TRANSLATIONS
ALLOCATED FROM PORTFOLIO 2,237,723
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $4,950,598
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
DECEMBER 31, 1997 YEAR ENDED
(UNAUDITED) JUNE 30, 1997
----------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 1,233,472 $ 1,824,215
Net Realized Gain on Investment and Foreign
Currency Transactions Allocated from Portfolio 1,479,403 3,370,108
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations
Allocated from Portfolio 2,237,723 6,451,745
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 4,950,598 11,646,068
----------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (2,267,047) (1,470,823)
Net Realized Gain (3,891,109) (1,827,802)
----------------- --------------
Total Distributions to Shareholders (6,158,156) (3,298,625)
----------------- --------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 34,032,792 23,003,598
Reinvestment of Dividends and Distributions 5,938,130 3,173,662
Cost of Shares of Beneficial Interest Redeemed (8,725,401) (17,385,015)
----------------- --------------
Net Increase from Transactions in Shares of
Beneficial Interest 31,245,521 8,792,245
----------------- --------------
Total Increase in Net Assets 30,037,963 17,139,688
NET ASSETS
Beginning of Period 70,338,053 53,198,365
----------------- --------------
End of Period (including undistributed net
investment income of $109,463 and $1,143,038,
respectively) $ 100,376,016 $ 70,338,053
----------------- --------------
----------------- --------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 15,
FOR THE FOR THE FISCAL YEAR ENDED 1993
SIX MONTHS ENDED JUNE 30, (COMMENCEMENT OF
DECEMBER 31, 1997 --------------------------- OPERATIONS) TO
(UNAUDITED) 1997 1996 1995 JUNE 30, 1994
----------------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.89 $ 12.22 $ 11.20 $ 9.81 $ 10.00
----------------- ------- ------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.37 0.30 0.28 0.09
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency 0.67 2.02 1.48 1.37 (0.27)
----------------- ------- ------- ------- ----------------
Total from Investment Operations 0.82 2.39 1.78 1.65 (0.18)
----------------- ------- ------- ------- ----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.36) (0.32) (0.32) (0.20) (0.01)
Net Realized Gain (0.66) (0.40) (0.44) (0.06) --
----------------- ------- ------- ------- ----------------
Total Distributions to Shareholders (1.02) (0.72) (0.76) (0.26) (0.01)
----------------- ------- ------- ------- ----------------
NET ASSET VALUE, END OF PERIOD $ 13.69 $ 13.89 $ 12.22 $ 11.20 $ 9.81
----------------- ------- ------- ------- ----------------
----------------- ------- ------- ------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 6.11%(a) 20.52% 16.51% 17.08% (1.82%)(a)
Net Assets, End of Period (in thousands) $ 100,376 $70,338 $53,198 $22,396 $ 7,023
Ratios to Average Net Assets
Expenses 0.98%(b) 0.98% 0.98% 0.98% 0.98%(b)
Net Investment Income 2.88%(b) 3.00% 3.04% 3.39% 2.80%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.14%(b) 0.27% 0.38% 0.91% 1.52%(b)
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Diversified Fund (the "Fund") is a separate series of the J.P.
Morgan Funds, a Massachusetts business trust (the "Trust") which was organized
on November 4, 1992. The Trust is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company. The
Fund commenced investment operations on December 15, 1993. Prior to January 1,
1998, the Trust's and the Fund's names were The JPM Pierpont Funds and The JPM
Pierpont Diversified Fund, respectively.
The Fund invests all of its investable assets in The Diversified Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Fund. The value of such investment included in
the Statement of Assets and Liabilities reflects the Fund's proportionate
interest in the net assets of the Portfolio (26% at December 31, 1997). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Fund:
a) Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c) Substantially all the Fund's net investment income is declared and paid as
dividends quarterly. Distributions to shareholders of realized net capital
gains, if any, are declared and paid at least once a year.
d) The Fund incurred organization expenses in the amount of $34,724. These
costs were deferred and are being amortized on a straight-line basis over
a five-year period from the commencement of operations.
e) The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
f ) Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
14
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The Trust on behalf of the Fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the Fund. Under a Co-Administration Agreement between FDI
and the Trust on behalf of the Fund, FDI provides administrative services
necessary for the operations of the Fund, furnishes office space and
facilities required for conducting the business of the Fund and pays the
compensation of the Fund's officers affiliated with FDI. The Fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust and certain other
investment companies subject to similar agreements with FDI. For the six
month period ended December 31, 1997, the fee for these services amounted
to $1,185.
b) The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
Portfolio and other portfolios in which the Trust and the J.P. Morgan
Institutional Funds (formerly The JPM Institutional Funds) invest (the
"Master Portfolios") and J.P. Morgan Series Trust (formerly JPM Series
Trust) in accordance with the following annual schedule: 0.09% on the
first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Fund is determined by the proportionate share that its net assets bear
to the net assets of the Trust, the Master Portfolios, other investors in
the Master Portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the six month period ended December 31, 1997, the
fee for these services amounted to $12,958.
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund, including
the expenses allocated to the Fund from the Portfolio, at no more than
0.98% of the average daily net assets of the Fund through October 31,
1998. For the six month period ended December 31, 1997, Morgan has agreed
to reimburse the Fund $29,830 for expenses under this agreement.
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the Fund. For the six months ended December 31, 1997, the fee for these
services amounted to $106,913.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
Fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services
15
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Agreement with Schwab is terminated for reasons other than a breach by
Schwab and the relationship between the Trust and Morgan is terminated,
the Fund would be responsible for the ongoing payments to Schwab with
respect to pre-termination shares.
d) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$1,478 for the six month period ended December 31, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, the J.P. Morgan Institutional Funds, the Master
Portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Fund's allocated portion
of these total fees and expenses. The Trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $300.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 FOR THE FISCAL
(UNAUDITED) JUNE 30, 1997
----------------- --------------
<S> <C> <C>
Shares sold...................................... 2,449,168 1,823,251
Reinvestment of dividends and distributions...... 438,529 262,972
Shares redeemed.................................. (622,732) (1,374,588)
----------------- --------------
Net Increase..................................... 2,264,965 711,635
----------------- --------------
----------------- --------------
</TABLE>
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and Portfolio.
4. CREDIT AGREEMENT
The Trust, on behalf of the Fund, together with other affiliated investment
companies (the "Funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. Additionally, since all
of the investable assets of the Fund are in the Portfolio, the Portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
Agreement is $100,000,000. Prior to January 26, 1998, the maximum borrowing
under the Agreement was $150,000,000. The Agreement expires on May 27, 1998,
however, the Fund and the unaffiliated lenders as parties to the Agreement will
have the ability to extend the Agreement and continue its participation therein
for an additional 364 days. The purpose of the
16
<PAGE>
J.P. MORGAN DIVERSIFIED FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Agreement is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The Funds pay a commitment fee at an annual rate of 0.065% on the unused
portion of the committed amount which is allocated to the Funds in accordance
with procedures established by their respective Trustees or Directors. The Fund
has not borrowed pursuant to the Agreement as of December 31, 1997.
17
<PAGE>
The Diversified Portfolio
Semi-Annual Report December 31, 1997
(The following pages should be read in conjunction
with the J.P. Morgan Diversified Fund
Semi-Annual Financial Statements)
18
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
EQUITIES (57.8%)
COMMON STOCK (57.1%)
FOREIGN COMMON STOCK (10.3%)
AUSTRALIA (0.2%)
Broken Hill Proprietary Company Ltd. (Metals &
Mining)(a)..................................... 26,100 $ 242,334
CSR Ltd. (Building Materials)(a)................. 37,700 127,733
Fosters Brewing Group Ltd. (Food, Beverages &
Tobacco)(a).................................... 27,000 51,369
Mayne Nickless Ltd. (Commercial Services)(a)..... 14,000 73,979
Southcorp Ltd. (Food, Beverages & Tobacco)(a).... 25,700 85,066
Westpac Banking Corporation Ltd. (Banking)(a).... 23,545 150,588
WMC Ltd. (Metals & Mining)(a).................... 49,800 173,597
-------------
904,666
-------------
BELGIUM (0.1%)
Algemene Maatschappij voor Nijverheidskredit NV
(Financial Services)(a)........................ 2,700 136,276
Arbed SA (Metals & Mining)(a).................... 700 76,518
Groupe Bruxelles Lambert SA (Multi -
Industry)(a)................................... 320 46,294
PetroFina SA (Oil-Production)(a)................. 190 70,128
-------------
329,216
-------------
FINLAND (0.0%)*
UPM-Kymmene OYJ (Forest Products & Paper)(a)..... 4,600 92,076
-------------
FRANCE (0.9%)
AXA-UAP (Insurance)(a)........................... 1,630 126,182
Carrefour Supermarche SA (Retail)(a)............. 256 133,620
Colas SA (Building Materials)(a)................. 710 102,088
Compagnie de Saint Gobain SA (Building
Materials)(a).................................. 862 122,511
Compagnie Financiere de Paribas (Financial
Services)...................................... 1,320 114,757
Compagnie Generale des Eaux (Utilities)(a)....... 3,902 544,840
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FRANCE (CONTINUED)
Elf Aquitaine SA (Oil-Services)(a)............... 2,610 $ 303,697
Eridania Beghin-Say SA (Food, Beverages &
Tobacco)(a).................................... 797 124,667
France Telecom SA (Telecommunication
Services)(a)+.................................. 4,380 158,939
L'Air Liquide SA (Chemicals)(a).................. 1,050 164,415
Lagardere S.C.A. (Multi - Industry)(a)........... 4,079 134,930
PSA Peugeot Citroen (Automotive)(a).............. 745 93,994
Sanofi SA (Pharmaceuticals)(a)................... 2,537 282,551
SEITA (Food, Beverages & Tobacco)(a)............. 3,760 135,003
SGS Thomson Microelectronics NV
(Electronics)(a)+.............................. 2,649 164,025
Thomson CSF (Electronics)(a)..................... 4,800 151,360
Total SA - B Shares (Oil-Services)(a)............ 1,844 200,773
Union des Assurances Federales (Insurance)(a).... 940 123,440
Usinor SA (Metals & Mining)(a)................... 7,141 103,153
-------------
3,284,945
-------------
GERMANY (0.9%)
Bayer AG (Chemicals)(a).......................... 5,690 212,658
Bilfinger & Berger Bau AG (Construction &
Housing)(a).................................... 2,300 71,378
Continental AG (Automotive)(a)................... 10,810 238,680
Deutsche Bank AG (Banking)(a).................... 5,150 363,757
Deutsche Pfandbrief-und Hypothekenbank AG
(Banking)(a)................................... 210 12,450
Douglas Holding AG (Retail)(a)................... 1,400 42,279
Dresdner Bank AG (Banking)(a).................... 3,680 169,874
Hannover Rueckversicherungs AG (Insurance)(a).... 3,046 284,603
Henkel KGAA (Chemicals)(a)....................... 2,180 122,455
Lufthansa AG (Airlines)(a)....................... 10,500 201,469
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance)(a)................................. 1,391 524,514
SAP AG (Computer Software)(a).................... 630 191,483
Schering AG (Pharmaceuticals)(a)................. 1,000 96,494
SGL Carbon AG (Chemicals)(a)..................... 800 103,223
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
GERMANY (CONTINUED)
Siemens AG (Electrical Equipment)(a)............. 6,440 $ 381,448
SKW Trostberg AG (Chemicals)(a).................. 2,200 69,865
VEBA AG (Utilities)(a)........................... 7,730 526,642
-------------
3,613,272
-------------
HONG KONG (0.2%)
Bank of East Asia Ltd. (Banking)(a).............. 160 375
Dickson Concepts International Ltd. (Wholesale &
International Trade)(a)........................ 36,500 53,231
Hong Kong & China Gas Co. Ltd. (Natural
Gas)(a)........................................ 59,000 114,219
Hong Kong Electric Holdings Ltd. (Electric)(a)... 22,500 85,519
HSBC Holdings PLC (Banking)(a)................... 2,800 69,022
Hutchison Whampoa Ltd.
(Multi - Industry)(a).......................... 16,000 100,358
New World Development Co. Ltd. (Real
Estate)(a)..................................... 24,000 83,012
Sun Hung Kai Properties Ltd. (Real Estate)(a).... 19,000 132,417
Swire Pacific Ltd. - A Shares (Multi -
Industry)(a)................................... 9,000 49,366
-------------
687,519
-------------
IRELAND (0.1%)
Allied Irish Banks PLC (Banking)(a).............. 18,700 181,245
CRH PLC (Building Materials)(a).................. 4,800 56,238
Greencore Group PLC (Food, Beverages &
Tobacco)(a).................................... 9,000 42,332
Irish Life PLC (Insurance)(a).................... 9,000 51,697
Jefferson Smurfit Group PLC (Forest Products &
Paper)(a)...................................... 49,500 139,697
-------------
471,209
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ITALY (0.5%)
Edison SPA (Utilities)(a)........................ 17,000 $ 102,885
ENI SPA (Oil-Services)(a)........................ 72,400 410,732
Istituto Bancario San Paolo di Torino
(Banking)(a)................................... 23,000 219,853
Istituto Mobiliare Italiano SPA (Financial
Services)(a)................................... 20,087 238,590
Istituto Nazionale Delle Assicurazioni
(Insurance)(a)................................. 223,000 452,181
Mediolanum SPA (Financial Services)(a)........... 4,400 82,873
Parmalat Finanziaria SPA (Food, Beverages &
Tobacco)(a).................................... 95,000 135,945
Telecom Italia SPA - RNC (Telecommunication
Services)(a)................................... 54,600 240,883
-------------
1,883,942
-------------
JAPAN (2.4%)
Bridgestone Corp. (Chemicals)(a)................. 18,000 391,783
Canon Inc. (Electronics)(a)...................... 7,000 163,666
Daiwa Danchi Co. Ltd. (Real Estate)(a)+.......... 6,000 8,860
DDI Corp. (Telecommunications)(a)................ 28 74,296
East Japan Railway Co. (Railroads)(a)............ 31 140,431
Ebara Corp. (Machinery)(a)....................... 16,000 169,819
Fanuc Ltd. (Machinery)(a)........................ 7,000 265,957
Fuji Photo Film Co. Ltd. (Electronics)(a)........ 9,000 346,098
Fujitsu Ltd. (Computer Systems)(a)............... 42,000 452,234
Hitachi Ltd. (Electrical Equipment)(a)........... 27,000 193,123
Ishihara Sangyo Kaisha Ltd. (Chemicals)(a)+...... 19,000 21,189
Ito - Yokado Co. Ltd. (Retail)(a)................ 6,000 306,873
Japan Tobacco, Inc. (Food, Beverages &
Tobacco)(a).................................... 21 149,560
Marubeni Corp. (Multi - Industry)(a)............. 17,000 29,941
Mitsubishi Corp. (Wholesale & International
Trade)(a)...................................... 21,000 166,358
Mitsubishi Estate Co. Ltd. (Real Estate)(a)...... 34,000 371,324
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Rayon Co. Ltd. (Textiles)(a).......... 43,000 $ 105,829
Mitsui Mining & Smelting Co. Ltd. (Metals &
Mining)(a)..................................... 25,000 100,753
Mitsui Trust & Banking Co. Ltd. (Banking)(a)..... 21,000 40,863
Mizuno Corp. (Retail)(a)......................... 9,000 27,342
Nippon Steel Corp. (Metals & Mining)(a).......... 79,000 117,266
Nippon Telegraph & Telephone Corp.
(Telecommunications)(a)........................ 54 465,155
Nishimatsu Construction Co. Ltd. (Construction &
Housing)(a).................................... 20,000 63,067
Nissan Motor Co. Ltd. (Automotive)(a)............ 35,000 145,361
Nissei Sangyo Co. Ltd. (Electrical
Equipment)(a).................................. 11,000 90,524
Nomura Securities Co. Ltd. (Financial
Services)(a)................................... 16,000 214,119
Ricoh Co. Ltd. (Electrical Equipment)(a)......... 22,000 274,109
Rohm Co. Ltd. (Electrical Equipment)(a).......... 1,000 102,291
San-In Godo Bank Ltd. (Banking)(a)............... 8,000 47,992
Secom Co. Ltd. (Electronics)(a).................. 3,000 192,430
Sekisui Chemical Co. Ltd. (Chemicals)(a)......... 15,000 76,488
Shin-Etsu Chemical Co. Ltd. (Chemicals)(a)....... 10,000 191,507
Shohkoh Fund & Co. Ltd. (Financial
Services)(a)................................... 100 30,610
Sony Corp. (Electronics)(a)...................... 4,900 437,160
Sumitomo Forestry Co. Ltd. (Forest Products &
Paper)(a)...................................... 15,000 73,719
Takeda Chemical Industries Ltd. (Chemicals)(a)... 20,000 572,215
TDK Corp. (Electronics)(a)....................... 3,000 227,040
The Bank of Tokyo - Mitsubishi Ltd.
(Banking)(a)................................... 28,000 387,629
The Kagawa Bank Ltd. (Banking)(a)................ 3,000 14,767
Toda Construction Co. (Building Materials)(a).... 20,000 54,607
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
JAPAN (CONTINUED)
Toho Bank Ltd. (Banking)(a)...................... 22,000 $ 87,986
Tokio Marine & Fire Insurance Co. Ltd.
(Insurance)(a)................................. 7,000 79,679
Tokyo Electric Power Co., Inc. (Electric)(a)..... 6,500 118,981
Tokyo Steel Manufacturing Co. Ltd. (Metals &
Mining)(a)..................................... 12,000 40,701
Toppan Printing Co. Ltd. (Broadcasting &
Publishing)(a)................................. 16,000 209,197
Tostem Corp. (Construction & Housing)(a)......... 18,000 193,815
Toyota Motor Corp. Ltd. (Automotive)(a).......... 28,000 805,408
Yamanouchi Pharmaceutical Co. Ltd.
(Pharmaceuticals)(a)........................... 15,000 323,025
York - Benimaru Co. Ltd. (Retail)(a)............. 3,000 36,225
-------------
9,199,372
-------------
MALAYSIA (0.0%)*
Commerce Asset-Holding Berhad (Banking)(a)....... 787 376
Gamuda Berhad (Construction & Housing)(a)........ 30,000 16,648
-------------
17,024
-------------
NETHERLANDS (1.3%)
Aegon NV (Insurance)(a).......................... 726 64,641
ING Groep NV (Financial Services)(a)............. 2,498 105,232
Philips Electronics NV (Electronics)(a).......... 1,796 107,730
Royal Dutch Petroleum Co. (Oil-Services)(a)...... 13,240 726,910
Royal Dutch Petroleum Co. (ADR) (Oil-Services)... 38,200 2,069,962
Unilever NV (Food, Beverages & Tobacco)(a)....... 2,760 170,183
Unilever NV (ADR) (Food, Beverages & Tobacco).... 29,600 1,848,150
-------------
5,092,808
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NEW ZEALAND (0.2%)
Brierley Investments Ltd. (Financial
Services)(a)................................... 96,000 $ 68,564
Carter Holt Harvey Ltd. (Forest Products &
Paper)(a)...................................... 40,100 61,936
Fletcher Challenge Building Division Ltd.
(Building Materials)(a)........................ 32,300 66,018
Fletcher Challenge Paper Division Ltd. (Forest
Products & Paper)(a)........................... 44,300 57,877
Lion Nathan Ltd. (Food, Beverages &
Tobacco)(a).................................... 44,100 98,842
Telecom Corp. of New Zealand Ltd.
(Telecommunications)(a)........................ 56,500 273,938
-------------
627,175
-------------
NORWAY (0.1%)
Kvaerner ASA - Series B (Capital Goods)(a)....... 2,100 97,705
Norsk Hydro ASA (Oil-Services)(a)................ 4,000 195,057
Nycomed Amersham PLC (Biotechnology)(a)+......... 3,068 111,530
Orkla ASA (Multi - Industry)(a).................. 900 70,074
-------------
474,366
-------------
SINGAPORE (0.2%)
City Developments Ltd. (Real Estate)(a).......... 14,000 64,809
Osprey Maritime Ltd. (Transport & Services)(a)... 61,000 48,874
Sembawang Marine & Logistics Ltd. (Transport &
Services)(a)................................... 22,000 32,381
Singapore Airlines Ltd. (Airlines)(a)............ 35,000 228,495
Singapore Press Holdings Ltd. (Entertainment,
Leisure & Media)(a)............................ 5,000 62,613
United Overseas Bank Ltd. (Banking)(a)........... 40,000 221,966
-------------
659,138
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SPAIN (0.3%)
Acerinox SA (Metals & Mining)(a)................. 270 $ 40,053
Banco Bilbao Vizcaya SA (Banking)(a)............. 8,660 280,115
Hidroelectrica del Cantabrico SA (Electric)(a)... 2,000 87,655
Iberdrola SA (Electric)(a)....................... 40,300 530,140
Repsol SA (Gas Exploration)(a)................... 3,500 149,263
Vallehermoso SA (Real Estate)(a)................. 1,421 43,539
-------------
1,130,765
-------------
SWEDEN (0.1%)
Autoliv, Inc. (SDR) (Automotive Supplies)(a)..... 5,500 179,189
Incentive AB - B Shares (Pharmaceuticals)(a)..... 1,685 152,267
Skandia Forsakrings AB (Insurance)(a)............ 4,837 228,305
-------------
559,761
-------------
SWITZERLAND (0.6%)
ABB AG (Machinery)(a)............................ 120 150,972
Holderbank Financiere Glarus AG - B Shares
(Building Materials)(a)........................ 145 118,501
Liechtenstein Global Trust AG (Banking)(a)....... 80 49,638
Nestle SA (Food, Beverages & Tobacco)(a)......... 335 502,770
Novartis AG (Pharmaceuticals)(a)................. 202 328,230
Roche Holding AG (Pharmaceuticals)(a)............ 41 407,737
Union Bank of Switzerland (Banking)(a)........... 446 645,814
-------------
2,203,662
-------------
UNITED KINGDOM (2.2%)
Allied Colloids Group PLC (Chemicals)(a)......... 49,314 134,694
Bass PLC (Food, Beverages & Tobacco)(a).......... 6,000 93,496
BAT Industries PLC (Food, Beverages &
Tobacco)(a).................................... 21,300 194,581
Billiton PLC (Metals & Mining)(a)+............... 33,100 84,962
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
British Airways PLC (Airlines)(a)................ 12,500 $ 115,178
British Petroleum Co. PLC (Oil-Services)(a)...... 27,352 362,466
British Sky Broadcasting Group PLC (Broadcasting
& Publishing)(a)............................... 3,900 29,262
British Telecommunications PLC
(Telecommunications)(a)........................ 34,900 275,482
Burmah Castrol PLC (Oil-Production)(a)........... 4,700 82,128
Cable & Wireless PLC (Telecommunications)(a)..... 7,000 61,620
Cadbury Schweppes PLC (Food, Beverages &
Tobacco)(a).................................... 15,500 156,715
Compass Group PLC (Food, Beverages &
Tobacco)(a).................................... 14,100 173,769
Diageo PLC (Food, Beverages & Tobacco)(a)........ 26,200 240,120
Flextech PLC (Broadcasting & Publishing)(a)+..... 4,800 41,227
General Cable PLC (Broadcasting &
Publishing)(a)+................................ 19,100 26,242
General Electric Co. PLC (Electrical
Equipment)(a).................................. 14,300 92,823
Glaxo Wellcome PLC (Pharmaceuticals)(a).......... 23,700 566,019
Glynwed International PLC (Metals & Mining)(a)... 31,000 132,109
Great Universal Stores PLC (Retail)(a)........... 20,300 256,190
HSBC Holdings PLC (75p) (Banking)(a)............. 14,100 366,562
Kingfisher PLC (Retail)(a)....................... 9,600 134,265
Lloyds TSB Group PLC (Banking)(a)................ 52,500 684,209
Lucas Varity PLC (Automotive Supplies)(a)........ 31,100 110,020
MEPC PLC (Real Estate)(a)........................ 21,200 177,203
MFI Furniture Group PLC (Household
Products)(a)................................... 55,817 110,669
National Power PLC (Electric)(a)................. 9,000 88,852
Northern Rock PLC (Financial Services)(a)+....... 12,000 117,876
Nycomed Amersham PLC (Biotechnology)(a).......... 1,620 60,295
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Pilkington PLC (Building Materials)(a)........... 48,200 $ 101,118
Prudential Corp. PLC (Insurance)(a).............. 22,000 268,374
Racal Electronic PLC (Telecommunications-
Equipment)(a).................................. 18,200 79,957
Rank Group PLC (Entertainment, Leisure &
Media)(a)...................................... 20,600 114,905
Reed International PLC (Broadcasting &
Publishing)(a)................................. 16,000 152,693
RMC Group PLC (Building Materials)(a)............ 5,000 70,917
Rolls-Royce PLC (Aerospace)(a)................... 19,500 75,400
Royal & Sun Alliance Insurance Group PLC
(Insurance)(a)................................. 18,000 181,553
Royal Bank of Scotland Group PLC (Banking)(a).... 23,200 296,297
RTZ Corp. PLC (Metals & Mining)(a)............... 4,500 55,569
Sainsbury (J.) PLC (Retail)(a)................... 25,200 212,711
Scottish Power PLC (Electric)(a)................. 32,000 283,272
Sears PLC (Retail)(a)............................ 78,000 68,021
Shell Transport & Trading Co.
(Oil-Services)(a).............................. 19,600 137,707
Smith & Nephew PLC (Medical Supplies)(a)......... 39,000 115,507
Standard Chartered PLC (Banking)(a).............. 6,324 67,636
Tomkins PLC (Multi - Industry)(a)................ 22,500 106,622
Unilever PLC (Food, Beverages & Tobacco)(a)...... 22,400 193,020
United News & Media PLC (Broadcasting &
Publishing)(a)................................. 4,000 45,610
Vickers PLC (Capital Goods)(a)................... 30,200 117,271
Vodafone Group PLC (Telecommunications)(a)....... 35,200 254,840
Wessex Water PLC (Water)(a)...................... 23,200 195,829
Zeneca Group PLC (Pharmaceuticals)(a)............ 12,300 436,452
-------------
8,600,315
-------------
TOTAL FOREIGN COMMON STOCK (COST
$36,365,318).................................. 39,831,231
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
UNITED STATES (46.8%)
BASIC INDUSTRIES (2.4%)
AGRICULTURE (0.1%)
Dekalb Genetics Corp. - Class B.................. 13,000 $ 510,250
-------------
CHEMICALS (1.2%)
Albemarle Corp................................... 2,700 64,462
Crompton & Knowles Corp.......................... 3,500 92,750
Cytec Industries, Inc.+.......................... 1,400 65,712
Dow Chemical Co.................................. 7,600 771,400
E.I. du Pont de Nemours & Co..................... 37,500 2,252,344
General Chemical Group, Inc...................... 1,300 34,775
Geon Co.......................................... 2,300 53,762
Georgia Gulf Corp................................ 2,600 79,625
Lyondell Petrochemical Co........................ 2,200 58,300
Minerals Technologies, Inc....................... 1,000 45,437
Monsanto Co...................................... 3,900 163,800
OM Group, Inc.................................... 500 18,312
PPG Industries Inc............................... 1,900 108,537
Praxair, Inc..................................... 4,300 193,500
Rohm & Haas Co................................... 1,700 162,775
Solutia, Inc..................................... 3,500 93,406
Union Carbide Corp............................... 6,200 266,212
Wellman, Inc..................................... 100 1,950
-------------
4,527,059
-------------
FOREST PRODUCTS & PAPER (0.5%)
American Pad & Paper Co.+........................ 14,000 134,750
Boise Cascade Corp............................... 3,000 90,750
Bowater Inc...................................... 2,200 97,762
Caraustar Industries, Inc........................ 5,200 179,400
Champion International Corp...................... 5,000 226,562
Georgia Pacific Corp. (Timber Group)+............ 3,500 79,406
Georgia-Pacific Corp............................. 3,500 212,625
Louisiana Pacific Corp........................... 4,300 81,700
Mead Corp........................................ 7,200 201,600
Stone Container Corp.+........................... 4,900 51,144
Temple-Inland, Inc............................... 4,300 224,944
Universal Forest Products, Inc................... 4,100 56,631
Weyerhaeuser Co.................................. 3,100 152,094
-------------
1,789,368
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
METALS & MINING (0.6%)
Alcan Aluminum Ltd............................... 8,800 $ 243,100
Allegheny Teledyne, Inc.......................... 10,800 279,450
Aluminum Company of America...................... 9,000 633,375
Commercial Metals Co............................. 13,200 416,625
Freeport-McMoran Copper & Gold, Inc. - Class A... 8,000 122,500
Inco, Ltd........................................ 6,400 108,800
Mueller Industries, Inc.+........................ 4,100 241,900
Phelps Dodge Corp................................ 400 24,900
Reynolds Metals Co............................... 1,800 108,000
Schnitzer Steel Industries, Inc. - Class A....... 4,400 124,025
Steel Technologies, Inc.......................... 9,400 112,212
-------------
2,414,887
-------------
TOTAL BASIC INDUSTRIES......................... 9,241,564
-------------
CONSUMER GOODS & SERVICES (10.4%)
AUTOMOTIVE (0.7%)
Amcast Industrial Corp........................... 4,100 94,044
Chrysler Corp.................................... 48,500 1,706,594
Cooper Tire & Rubber Co.......................... 4,800 117,000
Ford Motor Co.................................... 400 19,475
Goodyear Tire and Rubber Co...................... 11,500 731,687
Sonic Automotive, Inc.+.......................... 2,300 22,137
-------------
2,690,937
-------------
BROADCASTING & PUBLISHING (0.6%)
Banta Corp....................................... 2,900 79,206
Digital Generation Systems, Inc.+................ 800 1,950
PRIMEDIA, Inc.+.................................. 4,500 56,812
R.R. Donnelley & Sons Co......................... 7,700 286,825
Tele-Communications TCI Ventures Group - Series
A+............................................. 12,400 351,462
Tele-Communications, Inc. - Series A+............ 23,600 658,587
U.S. West Media Group+........................... 31,800 918,225
-------------
2,353,067
-------------
ENTERTAINMENT, LEISURE & MEDIA (1.6%)
Cinar Films, Inc. - Class B+..................... 500 19,312
Circus Circus Enterprises, Inc.+................. 7,800 159,900
Education Management Corp.+...................... 1,200 37,575
Harrah's Entertainment, Inc.+.................... 5,700 107,587
Hasbro, Inc.+.................................... 10,000 315,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ENTERTAINMENT, LEISURE & MEDIA (CONTINUED)
Hilton Hotels Corp............................... 12,500 $ 371,875
Imax Corp.+...................................... 4,200 91,350
International Game Technology.................... 7,000 176,750
ITT Corp.+....................................... 5,900 488,962
Mattel, Inc...................................... 15,100 562,475
MGM Grand, Inc.+................................. 3,100 111,794
Mirage Resorts, Inc.+............................ 9,600 218,400
N2K, Inc.+....................................... 200 2,900
Seagram Company Ltd.............................. 17,600 568,700
Steiner Leisure Ltd.+............................ 1,850 56,887
Time Warner, Inc................................. 29,900 1,853,800
Viacom, Inc. - Class B+.......................... 19,400 803,887
-------------
5,947,154
-------------
FOOD, BEVERAGES & TOBACCO (2.6%)
American Italian Pasta Co. -
Class A+....................................... 400 10,000
Anheuser Busch Companies, Inc.................... 19,000 836,000
Beringer Wine Estates Holdings, Inc. - Class
B+............................................. 200 7,600
Coca-Cola Co..................................... 28,400 1,892,150
General Mills, Inc............................... 5,500 393,937
Heinz (H.J.) Company............................. 3,900 198,169
Kellogg Co....................................... 16,800 833,700
PepsiCo, Inc..................................... 49,000 1,785,437
Philip Morris Companies, Inc..................... 79,000 3,579,687
Ralston-Ralston Purina Group..................... 5,300 492,569
-------------
10,029,249
-------------
HOUSEHOLD APPLIANCES & FURNISHINGS (0.3%)
Aaron Rents, Inc................................. 5,000 96,875
Black & Decker Corp.............................. 6,300 246,094
Bush Industries, Inc. - Class A.................. 6,900 179,400
LADD Furniture, Inc.+............................ 900 13,556
Leggett & Platt, Inc............................. 4,300 180,062
Royal Appliance Manufacturing Co.+............... 1,300 8,612
Stanley Furniture Co., Inc.+..................... 1,100 31,144
Whirlpool Corp................................... 5,500 302,500
-------------
1,058,243
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HOUSEHOLD PRODUCTS (1.0%)
Bush Boake Allen, Inc.+.......................... 2,700 $ 70,706
Procter & Gamble Co.............................. 46,200 3,687,337
Rubbermaid, Inc.................................. 11,000 275,000
-------------
4,033,043
-------------
PERSONAL CARE (0.6%)
Avon Products, Inc............................... 4,000 245,500
Gillette Co...................................... 17,900 1,797,831
International Flavors & Fragrances, Inc.......... 2,100 108,150
-------------
2,151,481
-------------
RESTAURANTS & HOTELS (0.5%)
Applebee's International, Inc.................... 1,300 23,441
Candlewood Hotel Company, Inc.+.................. 4,200 37,012
Extended Stay America, Inc.+..................... 7,700 95,769
Friendly Ice Cream Corp.+........................ 1,000 11,562
McDonald's Corp.................................. 29,000 1,384,750
Papa John's International, Inc.+................. 3,900 136,256
Showbiz Pizza Time, Inc.+........................ 2,300 53,187
-------------
1,741,977
-------------
RETAIL (2.3%)
Albertson's, Inc................................. 4,100 194,237
American Stores Co............................... 9,800 201,512
AutoZone, Inc.+.................................. 7,100 205,900
Best Buy Co., Inc.+.............................. 2,000 73,750
Central Garden & Pet Co.+........................ 1,400 36,925
Charming Shoppes, Inc.+.......................... 5,700 26,541
Circuit City Stores, Inc......................... 4,600 163,587
CML Group, Inc.+................................. 2,800 9,275
Corporate Express, Inc.+......................... 6,100 78,728
Dayton Hudson Corp............................... 12,200 823,500
Delia's, Inc.+................................... 2,600 57,525
Dillard's Inc. - Class A......................... 5,000 176,250
Federated Department Stores, Inc.+............... 9,700 417,706
Garden Ridge Corp.+.............................. 12,100 173,181
General Nutrition Companies, Inc.+............... 2,800 95,025
Gymboree Corp.+.................................. 3,700 101,519
Home Depot, Inc.................................. 400 23,550
Kroger Co.+...................................... 11,900 439,556
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
RETAIL (CONTINUED)
Lazare Kaplan International, Inc.+............... 1,400 $ 18,900
Let's Talk Cellular & Wireless, Inc.+............ 900 9,337
Lithia Motors, Inc. - Class A+................... 2,100 30,056
May Department Stores Co......................... 4,200 221,287
Nine West Group, Inc.+........................... 1,400 36,312
One Price Clothing Stores, Inc.+................. 6,500 10,055
ONSALE, Inc.+.................................... 2,300 41,400
Pacific Sunwear of California+................... 750 22,312
Party City Corp.+................................ 5,000 160,312
Penn Traffic Co.+................................ 1,900 15,675
Safeway, Inc.+................................... 10,300 651,475
Sears, Roebuck & Co.............................. 21,300 963,825
ShopKo Stores, Inc.+............................. 1,000 21,750
The Sports Authority, Inc.+...................... 1,300 19,175
TJX Companies, Inc............................... 6,700 230,312
Toymax International, Inc.+...................... 700 5,994
Toys 'R' Us, Inc.+............................... 14,400 452,700
Urban Outfitters, Inc.+.......................... 10,100 185,587
USA Floral Products, Inc.+....................... 500 7,937
Wal-Mart Stores, Inc............................. 68,300 2,693,581
-------------
9,096,249
-------------
TEXTILES & APPAREL (0.2%)
Ashworth, Inc.+.................................. 6,900 76,331
Fruit of the Loom, Inc. - Class A+............... 6,000 153,750
Nike, Inc. - Class B............................. 7,600 298,300
Reebok International Ltd.+....................... 4,100 118,131
Tropical Sportswear International Corp.+......... 1,100 11,206
Worldtex, Inc.+.................................. 1,500 11,906
-------------
669,624
-------------
TOTAL CONSUMER GOODS & SERVICES................ 39,771,024
-------------
ENERGY (3.4%)
GAS EXPLORATION (0.1%)
Newfield Exploration Co.+........................ 5,500 128,219
Ocean Energy, Inc.+.............................. 1,100 54,244
Patterson Energy, Inc.+.......................... 2,700 104,878
-------------
287,341
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
OIL PRODUCTION (2.8%)
Amoco Corp....................................... 100 $ 8,512
Anadarko Petroleum Corp.......................... 2,400 145,650
Ashland, Inc..................................... 4,400 236,225
Atlantic Richfield Co............................ 10,500 841,312
Chevron Corp..................................... 11,000 847,000
Exxon Corp....................................... 71,800 4,393,262
Mobil Corp....................................... 35,400 2,555,437
Occidental Petroleum Corp........................ 7,400 216,912
Plains Resources, Inc.+.......................... 5,600 96,250
Snyder Oil Corp.................................. 3,400 62,050
Texaco Inc....................................... 16,000 870,000
Tosco Corp....................................... 7,800 294,937
Ultramar Diamond Shamrock Corp................... 1,300 41,437
Unocal Corp...................................... 4,000 155,250
Valero Energy Corp............................... 2,800 88,025
Vintage Petroleum, Inc........................... 1,800 34,200
-------------
10,886,459
-------------
OIL SERVICES (0.5%)
Baker Hughes Inc................................. 5,400 235,575
Bayard Drilling Technologies, Inc.+.............. 500 8,125
Cooper Cameron Corp.+............................ 2,100 128,100
Diamond Offshore Drilling, Inc................... 4,000 192,500
ENSCO International Inc.......................... 1,800 60,300
Falcon Drilling Co., Inc.+....................... 3,200 112,200
Halliburton Company.............................. 200 10,387
Hanover Compressor Co.+.......................... 2,100 42,919
Input/Output, Inc.+.............................. 5,300 157,344
IRI International Corp.+......................... 1,000 14,000
Noble Drilling Corp.+............................ 5,200 159,250
Schlumberger Ltd................................. 6,900 555,450
Seacor Smit, Inc.+............................... 1,500 90,375
Smith International, Inc.+....................... 400 24,550
-------------
1,791,075
-------------
TOTAL ENERGY................................... 12,964,875
-------------
FINANCE (8.5%)
BANKING (3.4%)
Ahmanson, H F and Co............................. 2,500 167,344
Associated Banc-Corp............................. 1,300 71,744
Banc One Corp.................................... 18,700 1,015,644
Bank United Corp. - Class A...................... 4,200 206,587
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
BankBoston Corp.................................. 1,400 $ 131,512
Banknorth Group, Inc............................. 2,300 148,494
BankUnited Financial Corp. - Class A+............ 1,000 15,437
Charter One Financial, Inc....................... 1,900 119,581
Chase Manhattan Corp............................. 11,900 1,303,050
Colonial BancGroup, Inc.......................... 3,800 130,862
Commercial Federal Corp.......................... 2,000 71,125
Community First Bankshares, Inc.................. 1,000 53,625
Compass Bancshares, Inc.......................... 1,800 78,862
Crestar Financial Corp........................... 3,000 171,000
Deposit Guaranty Corp............................ 700 39,812
Dime Bancorp, Inc................................ 3,300 99,825
First Alliance Corp.+............................ 1,200 22,200
First Chicago NBD Corp........................... 13,000 1,085,500
First Hawaiian, Inc.............................. 2,100 84,394
First Republic Bank+............................. 1,500 47,906
First Tennessee National Corp.................... 1,300 86,856
First Union Corp................................. 26,600 1,363,250
Firstar Corp..................................... 3,600 152,775
FirstFed Financial Corp.+........................ 2,900 112,375
Flagstar Bancorp, Inc............................ 3,000 58,969
Fleet Financial Group, Inc....................... 7,500 562,031
GBC Bancorp...................................... 2,400 152,400
Golden West Financial Corp....................... 2,300 224,969
GreenPoint Financial Corp........................ 1,100 79,819
Hamilton Bancorp, Inc.+.......................... 700 20,387
HUBCO, Inc....................................... 3,981 156,005
InterWest Bancorp, Inc........................... 700 26,862
Irwin Financial Corp............................. 1,100 46,681
Mercantile Bancorporation, Inc................... 3,200 196,800
National Commerce Bancorporation................. 5,300 185,500
NationsBank Corp................................. 34,800 2,116,275
North Fork Bancorporation, Inc................... 2,200 73,837
Northern Trust Corp.............................. 300 20,981
Pacific Century Financial Corp................... 3,400 84,150
Provident Financial Group, Inc................... 1,100 53,694
Republic New York Corp........................... 1,500 171,281
Security First Network Bank+..................... 500 3,687
Southtrust Corp.................................. 3,800 240,825
Sovereign Bancorp, Inc........................... 2,300 47,797
Star Banc Corp................................... 2,300 131,962
Sun Bancorp, Inc.+............................... 300 9,712
TCF Financial Corp............................... 2,800 95,025
Trustco Bank Corp................................ 5,395 149,037
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
Valley National Bancorp.......................... 1,100 $ 43,244
Washington Federal, Inc.......................... 2,000 62,937
Washington Mutual, Inc........................... 9,200 586,787
Wells Fargo & Co................................. 2,300 780,706
-------------
13,162,120
-------------
FINANCIAL SERVICES (2.8%)
American Express Co.............................. 12,700 1,133,475
Amresco, Inc.+................................... 1,500 44,906
Associates First Capital Corp. - Class A......... 1,200 85,350
Bear Stearns Companies, Inc...................... 3,100 147,250
Beneficial Corp.................................. 2,500 207,812
Capital One Financial Corp....................... 1,800 97,537
Citicorp......................................... 12,600 1,593,112
ContiFinancial Corp.+............................ 2,000 50,375
Edwards (A.G.), Inc.............................. 4,500 178,875
Federal Home Loan Mortgage Corporation........... 19,500 817,781
Federal National Mortgage Association............ 38,800 2,214,025
Finova Group, Inc................................ 2,000 99,375
Green Tree Financial Corp........................ 3,700 96,894
Household International, Inc..................... 2,900 369,931
Litchfield Financial Corp........................ 3,960 74,497
Money Store, Inc................................. 1,600 33,600
Morgan Stanley, Dean Witter, Discover & Co....... 20,100 1,188,412
Ocwen Financial Corp.+........................... 3,400 86,487
Providian Financial Corp......................... 7,800 352,462
Travelers Group, Inc............................. 35,700 1,923,337
WBK STRYPES Trust................................ 2,600 87,100
WFS Financial, Inc.+............................. 3,900 45,216
Willis Lease Finance Corp.+...................... 3,700 64,287
-------------
10,992,096
-------------
INSURANCE (1.9%)
AMBAC, Inc....................................... 1,800 82,800
American General Corp............................ 9,600 519,000
American International Group, Inc................ 26,500 2,881,875
Capital Re Corp.................................. 9,550 592,697
CIGNA Corp....................................... 3,000 519,187
Financial Security Assurance Holdings Ltd........ 1,100 53,075
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
INSURANCE (CONTINUED)
Fremont General Corp............................. 1,200 $ 65,700
Hartford Financial Services Group, Inc........... 4,700 439,744
Marsh & McLennan Companies, Inc.................. 6,700 499,569
MBIA, Inc........................................ 4,600 307,337
Nationwide Financial Services, Inc............... 1,500 54,187
Ohio Casualty Corp............................... 1,200 54,150
PMI Group, Inc................................... 1,900 137,394
RenaissanceRe Holdings, Ltd...................... 5,800 255,925
Safeco Corp...................................... 2,900 141,194
St. Paul Companies, Inc.......................... 3,300 270,806
Transamerica Corp................................ 3,000 319,500
UNUM Corp........................................ 5,500 299,062
-------------
7,493,202
-------------
REAL ESTATE INVESTMENT TRUSTS (0.4%)
American General Hospitality Corp................ 3,800 101,650
American Residential Investment Trust, Inc....... 1,000 11,875
Arden Realty Group, Inc.......................... 4,700 144,525
Brandywine Realty Trust.......................... 1,500 37,687
Burnham Pacific Properties, Inc.................. 3,900 59,719
Developers Diversified Realty Corp............... 1,700 65,025
Entertainment Properties Trust................... 2,100 40,687
Gables Residential Trust......................... 5,500 151,938
Hanover Capital Mortgage Holdings, Inc........... 900 14,850
IMH Commercial Holdings, Inc..................... 1,000 17,750
Innkeepers USA Trust............................. 1,100 17,050
Manufactured Home Communities, Inc............... 1,700 45,900
National Golf Properties, Inc.................... 1,500 49,219
Oasis Residential, Inc........................... 5,400 120,488
Post Properties, Inc............................. 4,122 167,456
Price REIT, Inc.................................. 1,600 65,500
Sunstone Hotel Investors, Inc.+.................. 1,800 31,050
Tower Realty Trust, Inc.......................... 1,700 41,863
TriNet Corporate Realty Trust, Inc............... 1,200 46,425
Urban Shopping Centers, Inc...................... 1,300 45,338
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Weeks Corp....................................... 3,300 $ 105,600
Westfield America, Inc........................... 1,000 17,000
-------------
1,398,595
-------------
TOTAL FINANCE.................................. 33,046,013
-------------
HEALTHCARE (5.3%)
BIOTECHNOLOGY (0.2%)
Applied Analytical Industries, Inc.+............. 3,900 65,813
ArQule, Inc.+.................................... 1,100 25,334
AutoCyte, Inc.+.................................. 1,900 13,656
Closure Medical Corp.+........................... 1,100 28,394
Cor Therapeutics, Inc.+.......................... 700 15,794
Human Genome Sciences, Inc.+..................... 5,100 203,363
Hyseq, Inc.+..................................... 300 2,831
Incyte Pharmaceuticals, Inc.+.................... 3,800 169,575
Millennium Pharmaceuticals, Inc.+................ 1,700 32,619
Novoste Corp.+................................... 700 15,663
SangStat Medical Corp.+.......................... 3,700 150,081
Synaptic Pharmaceutical Corp.+................... 500 5,313
Vical, Inc.+..................................... 1,200 14,475
-------------
742,911
-------------
HEALTH SERVICES (1.1%)
Aetna, Inc....................................... 5,200 366,925
Alternative Living Services, Inc.+............... 2,570 75,976
Columbia / HCA Healthcare Corp................... 38,200 1,131,675
Endocardial Solutions, Inc.+..................... 1,700 16,788
Health Care & Retirement Corp.+.................. 2,700 108,675
Humana, Inc.+.................................... 15,700 325,775
Lifeline Systems, Inc.+.......................... 2,700 67,331
Mariner Health Group, Inc.+...................... 10,900 177,806
Paracelsus Healthcare Corp.+..................... 2,300 7,763
Pediatrix Medical Group, Inc.+................... 1,000 42,750
Perkin-Elmer Corp................................ 3,900 277,144
ProMedCo Management Co.+......................... 1,500 15,094
Renal Care Group, Inc.+.......................... 900 28,913
Renal Treatment Centers, Inc.+................... 1,000 36,125
Sierra Health Services, Inc.+.................... 4,200 141,225
Summit Care Corp.+............................... 2,100 34,913
Sunrise Assisted Living, Inc.+................... 700 30,013
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Tenet Healthcare Corp.+.......................... 19,000 $ 629,375
United Healthcare Corp........................... 16,200 804,938
-------------
4,319,204
-------------
MEDICAL SUPPLIES (0.3%)
Bausch & Lomb, Inc............................... 3,300 130,763
Boston Scientific Corp.+......................... 12,000 550,500
Cardiac Pathways Corp.+.......................... 1,200 8,175
Computer Motion, Inc.+........................... 1,100 11,413
Conceptus, Inc.+................................. 1,000 5,125
CONMED Corp.+.................................... 1,400 36,925
Eclipse Surgical Technologies+................... 4,000 23,250
Focal, Inc.+..................................... 500 5,406
Heartstream, Inc.+............................... 3,800 40,731
Henry Schein, Inc.+.............................. 700 24,588
Kensey Nash Corp.+............................... 6,000 99,375
Medi-Ject Corp.+................................. 5,000 10,156
Physio-Control International Corp.+.............. 1,200 19,050
ResMed, Inc.+.................................... 800 22,500
Sola International, Inc.+........................ 2,100 68,250
Urologix, Inc.+.................................. 700 12,731
Ventana Medical Systems, Inc.+................... 9,800 150,063
-------------
1,219,001
-------------
PHARMACEUTICALS (3.7%)
Alza Corp.+...................................... 6,300 200,419
American Home Products Corp...................... 5,900 451,350
Bristol-Myers Squibb Co.......................... 39,800 3,766,075
Crescendo Pharmaceuticals Corp.+................. 300 3,469
Forest Laboratories, Inc.+....................... 3,700 182,456
Johnson & Johnson................................ 11,000 724,625
Kos Pharmaceuticals, Inc.+....................... 3,500 53,922
Ligand Pharmaceuticals -
Class B+....................................... 1,300 16,819
Merck & Company, Inc............................. 38,100 4,048,125
Pfizer, Inc...................................... 17,200 1,282,475
Schering-Plough Corp............................. 21,500 1,335,688
Warner-Lambert Co................................ 16,500 2,046,000
Watson Pharmaceuticals, Inc.+.................... 5,000 162,188
-------------
14,273,611
-------------
TOTAL HEALTHCARE............................... 20,554,727
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
INDUSTRIAL PRODUCTS & SERVICES (4.9%)
AUTOMOTIVE SUPPLIES (0.1%)
Echlin, Inc...................................... 4,600 $ 166,463
Genuine Parts Co................................. 10,900 369,919
-------------
536,382
-------------
BUILDING MATERIALS (0.0%)*
Owens Corning.................................... 4,000 136,500
Rock of Ages Corp.+.............................. 1,100 17,050
-------------
153,550
-------------
BUSINESS & PUBLIC SERVICES (0.1%)
American Residential Services, Inc.+............. 5,300 82,813
Comfort Systems USA, Inc.+....................... 1,800 35,550
Service Experts, Inc.+........................... 2,800 80,150
Youth Services International, Inc.+.............. 1,900 29,153
-------------
227,666
-------------
CAPITAL GOODS (0.4%)
ABC Rail Products Corp.+......................... 1,200 24,150
Applied Power, Inc. - Class A.................... 1,300 89,700
Cincinnati Milacron, Inc......................... 2,100 54,469
Collins & Aikman Corp.+.......................... 5,400 46,575
Cummins Engine Company, Inc...................... 1,500 88,594
Eaton Corp....................................... 1,600 142,800
Fluor Corp....................................... 3,700 138,288
Foster Wheeler Corp.............................. 2,100 56,831
Harnischfeger Industries, Inc.................... 2,200 77,688
IDEX Corp........................................ 3,700 129,038
MagneTek, Inc.+.................................. 12,700 247,650
Modine Manufacturing Co.......................... 7,200 247,275
Shaw Group, Inc.+................................ 2,900 66,700
Wabash National Corp............................. 9,100 258,781
-------------
1,668,539
-------------
COMMERCIAL SERVICES (0.2%)
Equity Corp. International+...................... 1,800 41,625
Hospitality Worldwide Services+.................. 500 6,563
Perceptron, Inc.+................................ 2,700 57,544
Pinkertons, Inc.+................................ 2,150 50,525
Service Corp. International...................... 12,700 469,106
Wackenhut Corrections Corp.+..................... 1,200 32,250
-------------
657,613
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
CONSTRUCTION & HOUSING (0.1%)
D.R. Horton, Inc................................. 24,276 $ 421,796
-------------
DIVERSIFIED MANUFACTURING (3.0%)
Aeroquip-Vickers Inc............................. 900 44,156
AlliedSignal, Inc................................ 41,000 1,596,438
Cooper Industries, Inc........................... 6,800 333,200
Eastman Kodak Co................................. 5,400 328,388
General Electric Co.............................. 48,900 3,588,038
General Motors Corp. - Class H................... 1,900 70,181
General Signal Corp.............................. 1,900 80,156
Harris Corp...................................... 9,600 440,400
Honeywell, Inc................................... 800 54,800
Intermet Corp.................................... 17,700 310,856
ITT Industries, Inc.............................. 7,400 232,175
Johnson Controls, Inc............................ 5,200 248,300
Rockwell International Corp...................... 6,600 344,850
Tenneco, Inc. - New Shares....................... 10,800 426,600
Tyco International Ltd........................... 38,600 1,739,413
W.H. Brady Co.................................... 1,600 50,200
Xerox Corp....................................... 21,100 1,557,444
-------------
11,445,595
-------------
ELECTRICAL EQUIPMENT (0.3%)
Anixter International, Inc.+..................... 2,400 39,600
Emerson Electric Co.............................. 17,000 959,438
Grainger (W.W.), Inc............................. 3,300 320,719
-------------
1,319,757
-------------
MACHINERY (0.2%)
Caterpillar, Inc................................. 11,500 558,469
Middleby Corp.+.................................. 800 6,325
-------------
564,794
-------------
PACKAGING & CONTAINERS (0.2%)
Kimberly-Clark Corp.............................. 17,500 862,969
-------------
POLLUTION CONTROL (0.3%)
American Disposal Services, Inc.+................ 1,500 54,844
Sevenson Environmental Services, Inc............. 2,240 26,320
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
POLLUTION CONTROL (CONTINUED)
Tetra Technologies, Inc.+........................ 5,200 $ 109,525
Waste Management, Inc............................ 39,500 1,086,250
-------------
1,276,939
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 19,135,600
-------------
TECHNOLOGY (6.9%)
AEROSPACE (0.7%)
Boeing Co........................................ 45,300 2,216,869
Coltec Industries, Inc.+......................... 11,400 264,338
Orbital Sciences Corp.+.......................... 5,200 155,025
Raytheon Co. - Class A........................... 1,069 52,693
-------------
2,688,925
-------------
COMPUTER PERIPHERALS (0.2%)
Bolder Technologies Corp.+....................... 1,700 15,938
EMC Corp./Mass+.................................. 21,600 592,650
HMT Technology Corp.+............................ 5,600 72,975
Hypercom Corp.+.................................. 1,900 26,838
In Focus Systems, Inc.+.......................... 1,800 55,238
Pinnacle Systems, Inc.+.......................... 2,800 69,125
Quantum Corp.+................................... 5,400 108,506
Raster Graphics, Inc.+........................... 2,200 9,969
-------------
951,239
-------------
COMPUTER SOFTWARE (1.1%)
Aspect Development, Inc.+........................ 700 36,488
Aspen Technologies, Inc.+........................ 2,400 81,750
Autodesk, Inc.................................... 1,700 62,688
Avid Technology, Inc.+........................... 2,400 64,350
Cognicase, Inc.+................................. 300 3,609
Computer Associates International, Inc........... 16,500 872,438
Edify Corp.+..................................... 5,800 108,750
Integrated Systems, Inc.+........................ 1,400 19,425
MAPICS, Inc.+.................................... 3,700 40,238
MathSoft, Inc.+.................................. 700 1,881
Metro Information Services, Inc.+................ 2,200 61,738
Metromail Corp.+................................. 4,600 82,225
Microsoft Corp.+................................. 14,200 1,834,906
Oracle Corp.+.................................... 39,600 882,338
SCM Microsystems, Inc.+.......................... 1,200 28,575
Transaction Systems Architects, Inc. - Class
A+............................................. 2,700 102,431
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Tripos, Inc.+.................................... 1,700 $ 24,544
Viasoft, Inc.+................................... 200 8,463
Visigenic Software, Inc.+........................ 2,700 15,272
-------------
4,332,109
-------------
COMPUTER SYSTEMS (1.5%)
Bell & Howell Co.+............................... 500 12,094
Compaq Computer Corp............................. 25,900 1,461,731
International Business Machines Corp............. 34,100 3,565,581
International Network Services+.................. 5,100 117,300
Nextlevel Systems, Inc.+......................... 4,100 73,288
Radiant Systems, Inc.+........................... 1,500 42,844
Sun Microsystems, Inc.+.......................... 15,400 615,038
-------------
5,887,876
-------------
ELECTRONICS (0.8%)
8 x 8, Inc.+..................................... 3,500 38,063
Bay Networks, Inc.+.............................. 9,500 242,844
Cabletron Systems, Inc.+......................... 6,900 103,500
Cisco Systems, Inc.+............................. 45,900 2,561,794
Integrated Device Technology, Inc.+.............. 8,600 81,163
Itron, Inc.+..................................... 2,000 36,375
Quickturn Design System, Inc.+................... 3,900 45,338
Sensormatic Electronics Corp..................... 3,300 54,244
Symbol Technologies, Inc......................... 2,700 101,925
-------------
3,265,246
-------------
INFORMATION PROCESSING (0.4%)
Checkfree Corp.+................................. 3,000 81,563
Computer Horizons Corp.+......................... 250 11,438
CSG Systems International, Inc.+................. 600 24,113
Electronic Data System Corp...................... 12,700 558,006
Excel Switching Corp.+........................... 2,000 35,875
First Data Corp.................................. 19,400 567,450
Remedy Corp.+.................................... 2,100 44,231
SanDisk Corp.+................................... 500 10,047
Sapient Corp.+................................... 1,100 67,788
-------------
1,400,511
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
SEMICONDUCTORS (1.7%)
Alliance Semiconductor Corp.+.................... 4,100 $ 19,091
Applied Materials, Inc.+......................... 12,400 373,163
ATMI, Inc.+...................................... 2,000 48,125
Exar Corp.+...................................... 900 14,963
Galileo Technology Ltd.+......................... 700 20,519
General Semiconductor, Inc.+..................... 1,400 16,188
Integrated Silicon Solution, Inc.+............... 3,700 28,444
Intel Corp....................................... 55,500 3,897,141
Motorola, Inc.................................... 21,000 1,198,313
National Semiconductor Corp.+.................... 5,600 145,250
SDL, Inc.+....................................... 3,500 50,531
SIPEX Corp.+..................................... 1,000 30,313
Texas Instruments, Inc........................... 13,300 598,500
Xilinx, Inc.+.................................... 2,600 91,000
-------------
6,531,541
-------------
TELECOMMUNICATION EQUIPMENT (0.1%)
ANTEC Corp.+..................................... 600 9,450
Commscope, Inc.+................................. 1,899 25,522
Lucent Technologies, Inc......................... 3,500 279,563
P-COM, Inc.+..................................... 2,700 47,250
Proxim, Inc.+.................................... 2,100 23,822
-------------
385,607
-------------
TELECOMMUNICATION SERVICES (0.4%)
360 Communications Co.+.......................... 6,300 127,181
Airtouch Communications, Inc.+................... 19,800 822,938
Aspect Telecommunications Corp.+................. 3,500 73,500
Concentric Network Corp.+........................ 4,200 36,750
Glenayre Technologies, Inc.+..................... 5,500 54,656
Metronet Communications Corp.+................... 700 11,878
Mobile Telecommunication Technologies Corp.+..... 4,100 90,713
Natural Microsystems Corp.+...................... 1,600 74,100
Premiere Technologies, Inc.+..................... 3,800 104,738
-------------
1,396,454
-------------
TOTAL TECHNOLOGY............................... 26,839,508
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TRANSPORTATION (0.6%)
AIRLINES (0.0%)*
ASA Holdings, Inc................................ 2,100 $ 59,784
Southwest Airlines Co............................ 5,500 135,438
-------------
195,222
-------------
RAILROADS (0.5%)
Burlington Northern Sante Fe Corp................ 5,300 492,569
CSX Corp......................................... 7,000 378,000
Genesee & Wyoming, Inc. -
Class A+....................................... 2,900 69,963
Illinois Central Corp............................ 2,000 68,125
Norfolk Southern Corp............................ 12,800 394,400
Union Pacific Corp............................... 8,400 524,475
Wisconsin Central Transportation Corp.+.......... 1,700 39,844
-------------
1,967,376
-------------
TRUCK & FREIGHT CARRIERS (0.1%)
Allied Holdings, Inc.+........................... 3,000 56,438
American Freightways Corp.+...................... 4,100 41,000
CNF Transportation, Inc.......................... 1,000 38,375
Consolidated Freightways Corp.+.................. 600 8,250
Jevic Transportation, Inc.+...................... 300 4,838
Motor Cargo Industries, Inc.+.................... 900 11,025
Ryder System, Inc................................ 2,400 78,600
Werner Enterprises, Inc.......................... 4,800 99,600
-------------
338,126
-------------
TOTAL TRANSPORTATION........................... 2,500,724
-------------
UTILITIES (4.4%)
ELECTRIC (1.3%)
Baltimore Gas & Electric Co...................... 4,900 166,906
Central & South West Corp........................ 7,100 192,144
Central Hudson Gas & Electric Corp............... 4,600 201,825
Central Louisiana Electric Co.................... 6,800 220,150
Cinergy Corp..................................... 5,300 203,056
CMS Energy Corp.................................. 3,500 154,219
Dominion Resources, Inc.......................... 6,800 289,425
Duke Power Co.................................... 13,200 730,950
Entergy Corp..................................... 8,900 266,444
GPU, Inc......................................... 4,000 168,500
Houston Industries, Inc.......................... 10,700 285,556
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
ELECTRIC (CONTINUED)
Illinova Corp.................................... 2,600 $ 70,038
New England Electric System...................... 2,400 102,600
NIPSCO Industries, Inc........................... 400 19,844
Northern States Power Co......................... 4,300 250,475
Otter Tail Power Co.............................. 1,700 64,813
Potomac Electric Power Co........................ 4,300 110,994
Public Service Enterprise Group.................. 2,800 88,725
Southern Co...................................... 25,100 649,463
Teco Energy, Inc................................. 4,800 135,000
Texas Utilities Co............................... 200 8,313
Unicom Corp...................................... 7,900 242,925
Union Electric Co................................ 3,700 160,025
Western Resources, Inc........................... 2,400 103,200
Wisconsin Energy Corp............................ 3,800 109,250
-------------
4,994,840
-------------
NATURAL GAS (0.3%)
Atmos Energy Corp................................ 3,300 99,825
Consolidated Natural Gas Company................. 3,200 193,600
El Paso Natural Gas Co........................... 2,200 146,300
Enron Corp....................................... 14,000 581,875
Wicor, Inc....................................... 3,900 181,106
-------------
1,202,706
-------------
TELEPHONE (2.7%)
American Communications Services, Inc.+.......... 2,600 33,638
AT & T Corp...................................... 6,700 410,375
Bell Atlantic Corp............................... 8,400 764,400
Bellsouth Corp................................... 25,000 1,407,813
GTE Corp......................................... 37,500 1,959,375
ICG Communications, Inc.+........................ 900 24,694
Intermedia Communications, Inc.+................. 1,200 72,825
ITC DeltaCom, Inc.+.............................. 300 4,913
MCI Communications Corp.......................... 27,100 1,161,066
NEXTLINK Communications, Inc. - Class A+......... 500 10,703
Omnipoint Corp.+................................. 3,500 81,594
SBC Communications, Inc.......................... 35,900 2,629,675
Sprint Corp...................................... 17,200 1,008,350
WorldCom, Inc.+.................................. 35,400 1,071,956
-------------
10,641,377
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
WATER (0.1%)
American Water Works, Inc........................ 900 $ 24,581
E'Town Corp...................................... 3,300 132,619
SJW Corp......................................... 300 18,150
Southern California Water Co..................... 2,900 72,863
-------------
248,213
-------------
TOTAL UTILITIES................................ 17,087,136
-------------
TOTAL UNITED STATES COMMON STOCK (COST
$132,987,977)................................. 181,141,171
-------------
TOTAL COMMON STOCK (COST $169,353,295)......... 220,972,402
-------------
</TABLE>
<TABLE>
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (0.5%)
INDUSTRIAL PRODUCTS & SERVICES (0.5%)
Home Ownership Funding, (144A) (Industrial) (cost
$2,002,080).................................... 2,000 1,951,326
-------------
PREFERRED STOCK (0.2%)
AUSTRALIA (0.0%)*
News Corporation Ltd. (Broadcasting &
Publishing).................................... 46,100 228,103
-------------
AUSTRIA (0.1%)
Bank Austria AG (Banking)+....................... 5,732 254,638
-------------
GERMANY (0.1%)
Jungheinrich AG (Machinery)...................... 760 114,124
ProSieben Media AG (Broadcasting &
Publishing)+................................... 1,234 57,649
ProSieben Media AG (ADR) (144A) (Broadcasting &
Publishing)+................................... 278 6,494
SAP AG (Computer Software)....................... 600 196,380
Volkswagen AG (Automotive)....................... 130 55,816
-------------
430,463
-------------
TOTAL PREFERRED STOCK (COST $712,606).......... 913,204
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
WARRANTS (0.0%)*
GERMANY (0.0%)*
Muenchener Rueckversicherungs-Gesellschaft AG,
Expiring 03/13/98 (Insurance)+................. 90 $ 52,557
Volkswagen AG, Expiring 10/27/98 (Automotive)+... 74 20,948
-------------
73,505
-------------
JAPAN (0.0%)*
Shin-Etsu Chemical Co. Ltd., Expiring 08/01/00
(Chemicals)+................................... 24 32,400
-------------
MALAYSIA (0.0%)*
Commerce Asset-Holding Berhad, Expiring 03/16/02
(Banking)+..................................... 82 12
-------------
TOTAL WARRANTS (COST $79,245).................. 105,917
-------------
TOTAL EQUITY SECURITIES (COST $172,147,226).... 223,942,849
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
FIXED INCOME SECURITIES (36.9%)
CONVERTIBLE BONDS (0.1%)
(IN JPY)
------------
JAPAN (0.1%)
BTM Cayman Finance Ltd., 4.25% due 03/31/49
(Financial Services)........................... $ 30,000,000 251,498
Yamanouchi Pharmaceutical Co. Ltd., 1.25% due
03/31/14 (Commercial Services)................. 10,000,000 108,444
-------------
359,942
-------------
TOTAL CONVERTIBLE BONDS (COST $460,833)........ 359,942
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
COLLATERIZED OBLIGATIONS (5.2%)
(IN USD)
------------
FINANCE (5.2%)
American Southwest Financial Corp., Support Bond,
Series 60, Class D, Callable, 8.90% due
03/01/18....................................... $ 1,913,720 $ 1,997,751
Caterpillar Financial Asset Trust, Series 1996-A,
Class A3, 6.30% due 05/25/02................... 500,000 502,435
BA Mortgage Securities, Inc., Remic: Subordinated
Bond, Series 1997-1, Class B2, Callable, 7.50%
due 07/25/26................................... 248,987 249,609
BTC Mortgage Investment Trust, Series 1997-S1,
Class B (144A), 6.45% due 12/31/09............. 500,000 500,000
Chase Commercial Mortgage Securities Corp.,
Subordinated Bond, Series 1996-2, Class X,
(144A), 6.90% due 11/19/06..................... 250,000 231,797
CS First Boston Mortgage Securities Corp.,
Sequential Payer, Series 1997-C2, Class A1,
Callable, 6.40% due 02/17/04................... 1,250,000 1,257,422
CS First Boston Mortgage Securities Corp., Series
1997-C2, Class B, Callable, 6.72% due
11/19/07....................................... 600,000 603,562
Federal Home Loan Mortgage Corp., Sequential
Payer, Series 2019, Class C, 6.50% due
02/15/19....................................... 1,250,000 1,236,133
First Union - Lehman Brothers Commercial Mortgage
Securities Corp., Subordinated Bond, Series
1997-C2, Class E, Callable, 7.12% due
11/18/12....................................... 300,000 296,062
GE Capital Mortgage Services, Inc., Subordinated
Bond, Series 1997-12, Class B3, Callable,
(144A), 7.00% due 12/25/27..................... 400,000 360,625
Green Tree Financial Corp., Sequential Payer,
Series 1994-1, Class A4, Callable, 7.20% due
04/15/19....................................... 3,000,000 3,077,100
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
Green Tree Financial Corp., Series 1992-1, Class
A3, Callable, 6.70% due 10/15/17............... $ 1,000,000 $ 1,005,770
Green Tree Home Improvement Loan Trust, Series
1997-E, Class HEA2, Callable, 6.39% due
01/15/29....................................... 2,000,000 2,002,180
J.P. Morgan Commercial Mortgage Finance Corp.,
Subordinated Bond, CSTR, Series 1996-C2, Class
E, Callable, (144A), 8.73% due 11/25/27........ 250,000 259,453
Merrill Lynch Mortgage Investors, Inc., Series
1997-C1, Class F, 7.12% due 06/18/29........... 1,000,000 920,938
Merrill Lynch Mortgage Investors, Inc.,
Subordinated Bond, CSTR, Series 1995-C2, Class
E, 8.19% due 06/15/21.......................... 241,973 240,801
Morgan Stanley Capital, Inc., Series 1997-RR,
Class D, Callable, 7.72% due 03/28/10.......... 800,000 772,125
Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1995-GAL1, Class E, Callable, (144A),
8.25% due 08/15/05............................. 250,000 253,789
Morgan Stanley Capital, Inc., Subordinated Bond,
Series 1997-HF1, Class F, Callable, (144A),
6.86% due 02/15/10............................. 1,000,000 911,250
Mortgage Capital Funding, Inc., Series 1997-MC2,
Class A1, 6.53% due 01/20/07................... 497,348 500,612
Premier Auto Trust, Series 1993-6, Class A2,
4.65% due 11/02/99............................. 353,845 350,781
The Money Store Home Equity Trust, Series 1997-D,
Class AF4, Callable, 6.44% due 09/15/24........ 800,000 800,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
FINANCE (CONTINUED)
World Omni Automobile Lease Securitization Trust,
Series 1996-A, Class A1, Sequential Payer,
Callable, 6.30% due 06/25/02................... $ 602,799 $ 603,450
World Omni Automobile Lease Securitization Trust,
Series 1997-A, Class A2, Sequential Payer,
Callable, 6.75% due 06/25/03................... 1,200,000 1,220,904
-------------
20,154,549
-------------
TOTAL COLLATERIZED OBLIGATIONS (COST
$19,979,516).................................. 20,154,549
-------------
CORPORATE OBLIGATIONS (12.3%)
BASIC INDUSTRIES (0.3%)
CHEMICALS (0.2%)
Solutia Inc., Callable, 6.72% due 10/15/37....... 650,000 658,151
-------------
FOREST PRODUCTS & PAPER (0.0%)*
Buckeye Cellulose Corp., Callable 12/15/00, 8.50%
due 12/15/05................................... 200,000 205,500
-------------
METALS & MINING (0.1%)
Ryerson Tull, Inc., Callable, 9.13% due
07/15/06....................................... 200,000 215,500
-------------
1,079,151
-------------
CONSUMER GOODS & SERVICES (0.8%)
AUTOMOTIVE SUPPLIES (0.1%)
Exide Corp., Callable 04/15/00, 10.00% due
04/15/05....................................... 250,000 265,000
Hayes Lemmerz International Inc., Callable
07/15/02, (144A), 9.13% due 07/15/07........... 250,000 258,750
-------------
523,750
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BROADCASTING & PUBLISHING (0.2%)
Capstar Broadcasting Partners, Callable 07/01/02,
9.25% due 07/01/07............................. $ 250,000 $ 255,625
Fox Kids Worldwide, Inc., Callable 11/01/02,
(144A), 9.25% due 11/01/07..................... 400,000 387,000
Grupo Televisa SA, (144A), 11.38% due 05/15/03... 200,000 218,500
-------------
861,125
-------------
ENTERTAINMENT, LEISURE & MEDIA (0.3%)
Fox/Liberty Networks LLC, Callable 08/15/02,
(144A), 8.88% due 08/15/07..................... 250,000 249,375
Jacor Communications Co., Callable 06/15/02,
(144A), 8.75% due 06/15/07..................... 300,000 305,250
Lamar Advertising Co., Callable 09/15/02, (144A),
8.63% due 09/15/07............................. 250,000 256,562
Outdoor Systems, Inc., Callable 06/15/02, 8.88%
due 06/15/07................................... 300,000 313,500
-------------
1,124,687
-------------
FOOD, BEVERAGES & TOBACCO (0.1%)
Cott Corp., Callable 07/01/00, 8.50% due
05/01/07....................................... 250,000 253,437
-------------
RETAIL (0.0%)*
Federated Department Stores, Inc., 8.13% due
10/15/02....................................... 200,000 214,150
-------------
TELECOMMUNICATIONS (0.1%)
Rogers Cablesystems Ltd., Callable 12/01/02,
10.00% due 12/01/07............................ 250,000 274,375
-------------
3,251,524
-------------
ENERGY (1.3%)
GAS EXPLORATION (0.2%)
Petroliam Nasional Berhad, (144A), 7.75% due
08/15/15....................................... 750,000 697,125
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
NATURAL GAS (0.3%)
Columbia Gas System, Inc., 6.61% due 11/28/02.... $ 500,000 $ 506,620
National Fuel Gas Co., Series D, 6.21% due
08/12/27....................................... 500,000 502,955
-------------
1,009,575
-------------
OIL PRODUCTION (0.5%)
Ocean Energy, Inc., Series B, Callable 07/15/02,
8.88% due 07/15/07............................. 250,000 266,875
Petroleos Mexicanos, Medium Term Note, 7.60% due
06/15/00....................................... 1,300,000 1,293,500
Plains Resources, Inc., Series B, Callable
03/15/01, 10.25% due 03/15/06.................. 250,000 268,750
-------------
1,829,125
-------------
OIL SERVICES (0.3%)
Oil Purchase Co., Sinking Fund, (144A), 7.10% due
04/30/02....................................... 1,000,000 997,800
-------------
4,533,625
-------------
FINANCE (5.9%)
BANKING (3.6%)
Abbey National First Capital, 8.20% due
10/15/04....................................... 1,000,000 1,099,630
Canadian Imperial Bank, 6.20% due 08/01/00....... 2,000,000 2,005,980
First Nationwide Holdings, Inc., 10.63% due
10/01/03....................................... 250,000 279,375
First Union Capital One, 7.94% due 01/15/27...... 1,000,000 1,067,260
First Union Corp., 6.55% due 10/15/35............ 2,800,000 2,854,096
Korea Development Bank, 6.25% due 05/01/00....... 500,000 426,100
Mercantile Safe Deposit & Trust, 6.16% due
08/16/99....................................... 1,000,000 1,002,000
Midland Bank PLC, 7.63% due 06/15/06............. 560,000 600,897
NationsBank Corp., 6.50% due 08/15/03............ 2,000,000 2,017,240
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
BANKING (CONTINUED)
St. George Bank Ltd., (144A), 7.15% due
06/18/07....................................... $ 2,250,000 $ 2,323,867
Swiss Bank Corp. - New York, 7.75% due
09/01/26....................................... 375,000 418,073
-------------
14,094,518
-------------
FINANCIAL SERVICES (2.3%)
Associates Corp. North America, 5.96% due
05/15/37....................................... 610,000 614,209
BTM Curacao Holdings NV, 6.41% due 09/29/49...... 1,200,000 1,152,000
CANTV Finance Ltd., 9.25% due 02/01/04........... 210,000 210,525
Federal Home Loan Mortgage Corporation, 7.00% due
03/15/11....................................... 2,750,000 2,785,558
Ford Motor Credit, 8.63% due 01/24/00............ 1,140,000 1,189,875
Guangdong International Trust & Investment Corp.,
(144A), 8.75% due 10/24/16..................... 500,000 508,750
Indah Kiat Finance Co. Mauritius, Callable
07/01/02, (144A), 10.00% due 07/01/07.......... 200,000 163,000
McKesson Finance of Canada, (144A), 6.55% due
11/01/02....................................... 750,000 752,940
Safeco Capital Trust 1, Callable 07/15/07,
(144A), 8.07% due 07/15/37..................... 900,000 946,125
Sampoerna Intl., (144A), 8.38% due 06/15/06...... 200,000 146,500
Sun World International, Inc., Callable 04/15/01,
(144A), 11.25% due 04/15/04.................... 250,000 267,500
-------------
8,736,982
-------------
22,831,500
-------------
HEALTHCARE (0.2%)
HEALTH SERVICES (0.2%)
Genesis Health Ventures, Inc., Callable 06/15/00,
9.75% due 06/15/05............................. 250,000 258,750
Tenet Healthcare Corp., Callable 01/15/02, 8.63%
due 01/15/07................................... 240,000 247,968
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
Tenet Healthcare Corp., Callable 03/01/00, 10.13%
due 03/01/05................................... $ 260,000 $ 283,400
Vencor Inc., Callable 07/15/02, (144A), 8.63% due
07/15/07....................................... 150,000 150,000
-------------
940,118
-------------
INDUSTRIAL PRODUCTS & SERVICES (0.3%)
DIVERSIFIED MANUFACTURING (0.2%)
Copamex Industrias SA de CV, Callable 04/30/02,
(144A), 11.38% due 04/30/04.................... 120,000 132,000
Grupo Imsa SA de CV, Callable 09/30/02, 8.93% due
09/30/04....................................... 250,000 250,000
Polymer Group, Inc., Series B, Callable 07/01/02,
9.00% due 07/01/07............................. 250,000 249,375
-------------
631,375
-------------
ELECTRICAL EQUIPMENT (0.1%)
Axa SA de CV, (144A), 9.00% due 08/04/04......... 300,000 289,500
-------------
920,875
-------------
TECHNOLOGY (0.9%)
ELECTRONICS (0.7%)
Sensormatic Electronics Corp., Callable, (144A),
7.74% due 03/29/06............................. 3,000,000 2,664,465
-------------
TELECOMMUNICATION SERVICES (0.2%)
McLeodUSA, Inc., Callable 07/15/02, (144A), 9.25%
due 07/15/07................................... 250,000 261,250
Paging Network Inc., Callable 10/15/01, 10.00%
due 10/15/08................................... 135,000 140,063
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
Qwest Communications International, Inc., Series
B, Callable 04/01/02, 10.88% due 04/01/07...... $ 250,000 $ 281,875
Rogers Cantel, Inc., Callable 10/01/02, (144A),
8.30% due 10/01/07............................. 250,000 248,125
-------------
931,313
-------------
3,595,778
-------------
TRANSPORTATION (0.2%)
TRANSPORT & SERVICES (0.2%)
Atlantic Express Transportation Corp., Callable
02/01/01, (144A), 10.75% due 02/01/04.......... 250,000 265,000
Teekay Shipping Corp., Sinking Fund, 8.32% due
02/01/08....................................... 500,000 508,750
-------------
773,750
-------------
UTILITIES (2.4%)
ELECTRIC (1.5%)
Calpine Corp., Callable 07/15/02, (144A), 8.75%
due 07/15/07................................... 250,000 253,750
Furnas Centrais Eletricas S.A., Callable/Putable
05/23/02, 9.00% due 05/23/05................... 500,000 465,000
Korea Electric Power Corp., 6.00% due 12/01/26... 1,000,000 802,760
Pacificorp, 6.71% due 01/15/26................... 1,280,000 1,248,333
Southern Co. Capital Trust I, Callable 02/01/07,
(144A), 8.19% due 02/01/37..................... 1,000,000 1,104,880
Waterford 3 Funding, SLOBS, Sinking Fund, 8.09%
due 01/02/17................................... 2,000,000 2,080,260
-------------
5,954,983
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
TELEPHONE (0.3%)
Pacific Bell, Callable 11/01/07, 7.25% due
11/01/27....................................... $ 1,000,000 $ 1,027,200
Philippine Long Distance Telephone, 10.63% due
06/02/04....................................... 150,000 155,625
Philippine Long Distance Telephone Company,
Series EMTM, 7.85% due 03/06/07................ 120,000 104,376
-------------
1,287,201
-------------
WATER (0.6%)
Hydro Quebec, 8.88% due 03/01/26................. 1,800,000 2,226,186
-------------
9,468,370
-------------
TOTAL CORPORATE OBLIGATIONS (COST
$46,784,427).................................. 47,394,691
-------------
SOVEREIGN BONDS (1.0%)
ARGENTINA (0.2%)
Province of Mendoza, (144A), 10.00% due
09/04/07....................................... 300,000 284,250
Republic of Argentina Global Bonds, 9.75% due
09/19/27....................................... 500,000 480,000
-------------
764,250
-------------
BRAZIL (0.2%)
Republic of Brazil C Bonds, Callable 04/15/98,
Sinking Fund, 8.00% due 04/15/14............... 855,195 669,190
-------------
MEXICO (0.4%)
United Mexican States Global Bonds, 7.25% due
03/16/98....................................... 500,000 499,750
United Mexican States Global Bonds, 11.50% due
05/15/26....................................... 750,000 887,850
-------------
1,387,600
-------------
POLAND (0.0%)*
Republic of Poland, Bearer, PDI, Callable
04/27/98, Sinking Fund, 4.00% due 10/27/14**... 250,000 216,250
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
VENEZUELA (0.2%)
Republic of Venezuela Global Bonds, 9.25% due
09/15/27....................................... $ 750,000 $ 673,500
-------------
TOTAL SOVEREIGN BONDS (COST $3,380,581)........ 3,710,790
-------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (7.1%)
FEDERAL HOME LOAN MORTGAGE CORP. (0.7%)
8.00% due 11/01/26............................... 2,167,083 2,241,738
8.50% due 09/01/01............................... 13,605 13,958
8.50% due 07/01/02............................... 561,147 575,797
-------------
2,831,493
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.0%)
8.00% due 12/01/26............................... 4,032,968 4,172,025
REMIC PAC-1, Series 1994-51, Class PH, 6.50% due
01/25/23....................................... 7,400,000 7,432,560
-------------
11,604,585
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (3.4%)
7.00% due 05/15/23............................... 5,377,744 5,420,359
7.50% due 07/15/22............................... 1,518,759 1,555,286
8.00% due 06/15/31............................... 2,125,832 2,193,540
9.00% due 05/15/16............................... 2,716,313 2,889,981
12.00% due 07/15/26.............................. 995,159 1,133,158
-------------
13,192,324
-------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST
$26,815,346).................................. 27,628,402
-------------
U.S. TREASURY OBLIGATIONS (11.2%)
U.S. TREASURY BONDS (6.1%)
6.50% due 11/15/26(a)............................ 5,790,000 6,180,709
8.50% due 02/15/20............................... 11,787,000 15,326,400
11.63% due 11/15/04.............................. 335,000 444,692
12.00% due 08/15/13.............................. 1,060,000 1,561,910
-------------
23,513,711
-------------
U.S. TREASURY NOTES (5.1%)
5.88% due 02/15/00............................... 800,000 803,008
6.00% due 06/30/99(a)............................ 5,744,000 5,773,180
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY NOTES (CONTINUED)
6.63% due 06/30/01(a)............................ $ 8,660,000 $ 8,896,765
7.75% due 11/30/99(a)............................ 3,600,000 3,733,524
7.88% due 11/15/04............................... 545,000 609,239
-------------
19,815,716
-------------
TOTAL U.S. TREASURY OBLIGATIONS (COST
$41,040,689).................................. 43,329,427
-------------
TOTAL FIXED INCOME SECURITIES (COST
$138,461,392)................................. 142,577,801
-------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.1%)
OTHER INVESTMENT COMPANIES (0.0%)*
Seven Seas Money Market Fund, 5.42%.............. 3,420 3,420
-------------
REPURCHASE AGREEMENT (4.0%)
Goldman Sachs Repurchase Agreement 6.5% dated
12/31/97 due 01/02/98, proceeds $15,414,564
(collateralized by $15,280,000 U.S. Treasury
Note, 6.125% due 11/15/27, valued at
$15,717,301)................................... 15,409,000 15,409,000
-------------
TIME DEPOSITS (0.0%)*
State Street Bank & Trust Co. London, 3.00% due
01/02/98....................................... 195,000 195,000
-------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ -------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.1%)
United States Treasury Bills, 5.09%++ due
04/09/98(a).................................... $ 370,000 $ 364,867
-------------
TOTAL SHORT-TERM INVESTMENTS (COST
$15,972,287).................................. 15,972,287
-------------
TOTAL INVESTMENTS (COST $326,580,905) (98.8%)..................
382,492,937
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)...................
4,782,230
-------------
NET ASSETS (100.0%)............................................ $ 387,275,167
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $326,800,295 for Federal Income Tax
purposes at December 31, 1997, the aggregate gross unrealized appreciation was
$62,947,304, and the aggregate gross unrealized depreciation was $7,254,662,
resulting in net unrealized appreciation of $55,692,642.
+ Non-Income Producing Securities
* Less than 0.1%
++ Yield to Maturity
**Rate shown reflects current rate on variable rate instrument or instrument
with step coupon rates.
(a) Security is fully or partially segregated with custodian as collateral for
futures contracts or with broker as initial margin for futures contracts. Total
market value of collateral is $24,715,441.
144A - Securities restricted for resale to Qualified Institutional Buyers
ADR - Securities whose value is determined or significantly influenced by
trading on exchanges not located in the US or Canada. ADR after the name of a
foreign holding stands for American Depository Receipt, representing ownership
of foreign securities on deposit with a domestic custodian bank.
CSTR - Collateral Strip Rate
REMIC - Real Estate Mortgage Investment Conduit
SLOBS - Secured Lease Obligation Bonds
The Accompanying Notes are an Integral Part of the Financial Statements.
39
<PAGE>
THE DIVERSIFIED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION
PERCENT OF
TOTAL
INVESTMENTS
---------------
<S> <C>
U.S. Government Agency/Treasury Obligations................................. 18.6%
Financial Services.......................................................... 10.8%
Banking..................................................................... 8.4%
Pharmaceuticals............................................................. 4.6%
Food & Beverages............................................................ 3.8%
Oil-Production.............................................................. 3.6%
Electric.................................................................... 3.2%
Diversified Manufacturing................................................... 3.2%
Telephone................................................................... 3.1%
Retail...................................................................... 2.8%
Insurance................................................................... 2.6%
Electronics................................................................. 2.0%
Chemicals................................................................... 1.9%
Oil-Services................................................................ 1.9%
Entertainment............................................................... 1.8%
Semi-Conductors............................................................. 1.7%
Computer Systems............................................................ 1.7%
Health Services............................................................. 1.4%
Computer Software........................................................... 1.2%
Broadcasting & Publishing................................................... 1.2%
Automotive.................................................................. 1.1%
Household Products.......................................................... 1.1%
Metals & Mining............................................................. 1.0%
Sovereign Bonds............................................................. 1.0%
Aerospace................................................................... 0.7%
Electrical Equipment........................................................ 0.7%
Water....................................................................... 0.7%
Forest Products & Paper..................................................... 0.6%
Telecommunications.......................................................... 0.6%
Natural Gas................................................................. 0.6%
Personal Care............................................................... 0.6%
Railroads................................................................... 0.6%
Industrial.................................................................. 0.5%
Capital Goods............................................................... 0.5%
Restaurants & Hotels........................................................ 0.5%
Miscellaneous............................................................... 5.5%
Short Term Investments...................................................... 4.2%
---------------
100.0%
---------------
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
40
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $326,580,905) $382,492,937
Cash 1,642
Foreign Currency at Value (Cost $2,214,154) 2,168,702
Receivable for Investments Sold 1,608,394
Interest Receivable 1,926,024
Unrealized Appreciation of Forward Foreign
Currency Contracts 440,313
Dividends Receivable 365,170
Foreign Tax Reclaim Receivable 59,105
Receivable for Expense Reimbursement 19,628
Deferred Organization Expenses 514
Prepaid Expenses and Other Assets 1,717
------------
Total Assets 389,084,146
------------
LIABILITIES
Payable for Investments Purchased 1,238,333
Unrealized Depreciation of Forward Foreign
Currency Contracts 241,371
Advisory Fee Payable 178,131
Custody Fee Payable 115,518
Administrative Services Fee Payable 9,789
Variation Margin Payable 6,739
Administration Fee Payable 896
Fund Services Fee Payable 434
Accrued Trustees' Fees and Expenses 1,040
Accrued Expenses 16,728
------------
Total Liabilities 1,808,979
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $387,275,167
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
41
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Tax
of $32) $ 4,994,114
Dividend Income (Net of Foreign Withholding Tax
of $40,000) 1,703,487
-----------
Investment Income 6,697,601
EXPENSES
Advisory Fee $ 956,224
Custodian Fees and Expenses 206,906
Administrative Services Fee 52,688
Professional Fees and Expenses 23,797
Fund Services Fee 6,143
Printing Expenses 5,844
Administration Fee 3,857
Trustees' Fees and Expenses 2,984
Amortization of Organization Expense 504
Miscellaneous 1,107
----------
Total Expenses 1,260,054
Less: Reimbursement of Expenses (129,972)
----------
NET EXPENSES 1,130,082
-----------
NET INVESTMENT INCOME 5,567,519
NET REALIZED GAIN (LOSS) ON
Investment Transactions (including $91,150 net
realized loss from futures contracts) 8,067,578
Foreign Currency Transactions (81,529)
----------
Net Realized Gain 7,986,049
NET CHANGE IN UNREALIZED APPRECIATION OF
Investments (including $140,614 net unrealized
appreciation from futures contracts) 6,927,089
Foreign Currency Contracts and Translations 256,751
----------
Net Change in Unrealized Appreciation 7,183,840
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $20,737,408
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
42
<PAGE>
THE DIVERSIFIED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
DECEMBER 31, 1997 YEAR ENDED
(UNAUDITED) JUNE 30, 1997
----------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 5,567,519 $ 9,646,581
Net Realized Gain on Investment and Foreign
Currency Transactions 7,986,049 20,441,920
Net Change in Unrealized Appreciation of
Investment and Foreign Currency Translations 7,183,840 26,949,621
----------------- --------------
Net Increase in Net Assets Resulting from
Operations 20,737,408 57,038,122
----------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 78,410,130 132,528,025
Withdrawals (19,510,706) (127,909,364)
----------------- --------------
Net Increase from Investors' Transactions 58,899,424 4,618,661
----------------- --------------
Total Increase in Net Assets 79,636,832 61,656,783
NET ASSETS
Beginning of Period 307,638,335 245,981,552
----------------- --------------
End of Period $ 387,275,167 $ 307,638,335
----------------- --------------
----------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL JULY 8, 1993
SIX MONTHS ENDED YEAR ENDED JUNE 30, (COMMENCEMENT OF
DECEMBER 31, 1997 --------------------- OPERATIONS) TO
(UNAUDITED) 1997 1996 1995 JUNE 30, 1994
----------------- ------- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%(a) 0.65% 0.65% 0.65% 0.70%(a)
Net Investment Income 3.20%(a) 3.33% 3.35% 3.71% 2.88%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.07%(a) 0.15% 0.17% 0.32% 0.48%(a)
Portfolio Turnover 31%(b) 100% 144% 136% 115%(b)
Average Broker Commission Rate per share $ 0.0087 $0.0060 -- -- --
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
43
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Diversified Portfolio (the "Portfolio") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a no-load diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. The Portfolio's investment objective
is to provide a high total return from a diversified portfolio of equity and
fixed income securities. The Portfolio may invest in international markets. The
Portfolio commenced operations on July 8, 1993. The Declaration of Trust permits
the Trustees to issue an unlimited number of beneficial interests in the
Portfolio.
Investments in foreign markets may involve certain considerations and risks not
typically associated with investments in the United States. Future economic and
political developments in foreign countries could adversely affect the liquidity
or value, or both, of such securities in which the Portfolio is invested. The
ability of the issuers of the debt securities held by the Portfolio to meet
their obligations may be affected by economic and political developments in a
specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the Portfolio's Trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
portfolio securities with a remaining maturity of less than 60 days are
valued at amortized cost.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net assets are calculated, such securities will be
valued at fair value in accordance with procedures established by and
under the general supervision of the Portfolio's Trustees.
The Portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
Portfolio. It is the policy of the Portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Portfolio has the
44
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the Portfolio are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expense are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the Portfolio
does not isolate the portion of the results of operations arising as a
result of changes in foreign exchange rates from the fluctuations arising
from changes in the market prices of securities during the period.
c) The Portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures established
by and under the general supervision of the Portfolio's Trustees, and the
change in the market value is recorded by the Portfolio as unrealized
appreciation or depreciation of forward foreign currency contract
translations. At December 31, 1997, the Portfolio had open forward
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
PURCHASE CONTRACTS PROCEEDS 12/31/97 (DEPRECIATION)
- ------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C>
German Mark 211,310 for GBP 71,225, expiring
01/22/98........................................ $ 117,067 $ 117,674 $ 607
Japanese Yen 251,070,934, expiring 01/22/98...... 2,060,000 1,937,293 (122,707)
Netherlands Guilder 2,886,636, expiring
01/22/98........................................ 1,480,000 1,425,906 (54,094)
Swedish Krona 5,139,032, expiring 01/22/98....... 680,000 648,096 (31,904)
Swiss Franc 1,117,160, expiring 01/22/98......... 800,000 767,996 (32,004)
</TABLE>
45
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
COST/ VALUE AT APPRECIATION/
SALES CONTRACTS PROCEEDS 12/31/97 (DEPRECIATION)
- ------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Australian Dollar 573,691, expiring 01/22/98..... $ 412,553 $ 373,981 $ 38,572
British Pound 47,838, expiring 01/22/98.......... 77,984 78,628 (644)
French Franc 1,707,030, expiring 01/22/98........ 290,099 284,117 5,982
German Mark 2,684,832, expiring 01/22/98......... 1,508,294 1,495,136 13,158
German Mark 358,168 for GBP 122,340, expiring
01/22/98........................................ 201,082 199,457 1,625
Irish Punt 192,944, expiring 01/22/98............ 279,566 274,906 4,660
Japanese Yen 585,055,301, expiring 01/22/98...... 4,816,741 4,514,356 302,385
New Zealand Dollar 845,714,
expiring 01/22/98............................... 538,847 490,122 48,725
Singapore Dollar 1,066,629, expiring 01/22/98.... 655,625 631,044 24,581
--------------
NET UNREALIZED APPRECIATION ON FORWARD FOREIGN
CURRENCY CONTRACTS.............................. $ 198,942
--------------
--------------
</TABLE>
d) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
Portfolio enters into the contract. Upon entering into such a contract,
the Portfolio is required to pledge to the broker an amount of cash and/or
liquid securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Portfolio agrees to receive
from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are
known as "variation margin" and are recorded by the Portfolio as
unrealized gains or losses. When the contract is closed, the Portfolio
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time when
it was closed. The Portfolio invests in futures contracts for the purpose
of hedging its existing portfolio securities, or securities the Portfolio
intends to purchase, against fluctuations in value caused by changes in
prevailing market interest rates or securities movements. The use of
futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets, and the possible inability of counterparties to
meet the terms of their contracts. Futures transactions during the six
months ended December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL AMOUNT
CONTRACTS OF CONTRACTS
--------- ----------------
<S> <C> <C>
Contracts open at beginning of year.............. 26 $ 1,921,484
Contracts opened -- long positions............... 313 33,547,368
Contracts opened -- short positions.............. 103 (11,594,803)
Contracts closed -- long positons................ (222) (23,539,457)
Contracts closed -- short positions.............. (89) 10,270,402
--------- ----------------
Contracts open at end of year.................... 131 $ 10,604,994
--------- ----------------
--------- ----------------
</TABLE>
46
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SUMMARY OF OPEN CONTRACTS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS LONG (DEPRECIATION)
-------------- --------------
<S> <C> <C>
Australian All Ordinary Index, expiring March
1998............................................ 25 $ 42,371
DAX Index, expiring March 1998................... 3 33,915
Financial Times-Stock Exchange 100 - Share Index,
expiring March 1998............................. 5 (10,937)
U.S. Five Year Note, expiring March 1998......... 81 18,455
U.S. Long Bond, expiring March 1998.............. 3 352
-------------- --------------
Totals........................................... 117 $ 84,156
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACTS SHORT (DEPRECIATION)
--------------- --------------
<S> <C> <C>
Topix Index, expiring March 1998................. 14 $ 41,589
--------------- --------------
--------------- --------------
</TABLE>
e) The Portfolio incurred organization expenses in the amount of $5,000.
These costs were deferred and are being amortized on a straight-line basis
over a five-year period from the commencement of operations.
f) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount become known. Interest income, which
includes the amortization of premiums and discounts, if any, is recorded
on an accrual basis. For financial and tax reporting purposes, realized
gains and losses are determined on the basis of specific lot
identification.
g) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The Portfolio earns foreign income which may
be subject to foreign withholding taxes at various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the Portfolio pays Morgan at an annual rate of
0.55% of the Portfolio's average daily net assets. For the six months
ended December 31, 1997, this fee amounted to $956,224.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
47
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of the
Portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended December 31, 1997, the fee
for these services amounted to $3,857.
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "Master Portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Portfolio is determined by the proportionate share that its net assets
bear to the net assets of the Master Portfolios, other investors in the
Master Portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the six months ended December 31, 1997, the fee
for these services amounted to $52,688.
In addition, Morgan has agreed to reimburse the Portfolio to the extent
necessary to maintain the total operating expenses of the Portfolio at no
more than 0.65% of the average daily net assets of the Portfolio through
October 31, 1998. For the six months ended December 31, 1997, Morgan has
agreed to reimburse the Portfolio $129,972 for expenses under this
agreement.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $6,143 for the six months ended December 31, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
the Master Portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the Portfolio's
allocated portion of the total fees and expenses. The Portfolio's Chairman
and Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $1,200.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
U.S. Government and Agency Obligations........... $ 60,978,600 $ 57,855,480
Corporate, Collateralized Obligations and Other
Securities....................................... 99,967,529 45,197,909
------------ ------------
$160,946,129 $103,053,389
------------ ------------
------------ ------------
</TABLE>
48
<PAGE>
THE DIVERSIFIED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the Fund's Notes to the Financial Statements which are
included elsewhere in this report.
49
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
EMERGING MARKETS DEBT FUND
GLOBAL STRATEGIC INCOME FUND
NEW YORK TOTAL RETURN BOND FUND
SHORT TERM BOND FUND
TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
JAPAN EQUITY FUND
FOR MORE INFORMATION ON HOW THE J.P. MORGAN FUNDS CAN HELP YOU PLAN FOR YOUR
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
J.P. MORGAN
DIVERSIFIED
FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
